solved 1) How do investors measure the risk of individual common

1) How do investors measure the risk of individual common stocks?  Please describe one of these methods in detail.  

POST 1
Investors can experience either systematic or unsystematic risks when investing into individual common stocks. The risks should not exceed the expected returns from an investment (CN Bank, n.d). The investors have to realize that all stocks have some form of risks, but degree of risks differ. They should also strive to learn the different strategies applied in assessing risks (CN Bank, n.d). They can utilize financial reports from the organizations or market analysts to compute the risks.
The study shows that risk analysis faces a lot of challenges. Investors rely on past performance to forecast the common stock risk (CN Bank, n.d). However, the past performance might be unrelated with future performance. A common stock could be very profitable today but experience negative earnings into the future (CN Bank, n.d). The other challenge lies in understanding the methods of risk analysis.
Some of the risk analysis methods include standard deviation, Bond risks, and Beta. “Beta is a measure of an investment’s risk against an index of the overall market such as the Standard & Poor’s 500 Index” (CN Bank, n.d). the investor could be investing in Amazon Company with a Beta of 0.4. The investor should interpret that the company’s risks changes by 0.4 units after the S & P 500 index varies by 1 unit. On the other hand, another company could be a Beta of 0.6 (CN Bank, n.d). The company’s risk varies by 0.6 units after the market’s risk varies by 1 unit. Therefore, the investor should choose Amazon as opposed to its rival since Amazon has a lower risk factor.

POST 2
Common stock is a type of equity share issued by a corporation or entity. The buyers of common stock are referred to as shareholders. Common stocks are fractional shares or a percentage equity ownership of an entity. Shares represent a proportional stake in the company’s net worth, income, cash flow, dividend. Shareholder privileges usually include voting rights on issues requiring shareholder approval and electing the entity’s directors.
Individual stocks will have bare minimum commissions, and even trading them would not be a complicated process. If they take mutual funds, we usually do not pay any commissions, but there will be a management fee. Of course, some of them will be less than 1%, and others may be around 3%. Individual stocks investments need essential homework on how the company is performing, their quarterly/annual reports. If they do not have time to go through one-company reports, then individual stocks are not a good choice (Boons, 2016).
Imagine one person investing his 25% income in Macy’s stocks in 2015 when the stock price was trading around $70; today, it is hardly $5. One good example of why a person should have diversification in investments if a person invests in the same retail industry 10% in each company that does not come under diverse investments. It has to be a different segment/area. Risk will be almost identical in the same market, but other factors such as sales, revenue, and future expansions. Will differ from one segment to another. Understanding the market trends is not going to be easy for the ordinary person. I would suggest investing in a company you know well; there is an old saying, “Invest in what you know.”
Risk management is critical in any decision-making process. Once risk is identified, either we need to mitigate or accept risk. Some regular measures are risk include standard deviation, value at risk (VaR), conditional value at risk (CVaR), and beta.
Standard deviation measures how much a variable tends to vary. Variables that are stable with small and infrequent fluctuations have a low standard deviation. Variables that move wildly, either up or down, have a high standard deviation. For example, the number of umbrellas sold in a convenience store will depend on weather and exhibit a significant standard deviation. However, the amount of milk sold will likely vary less and be more stable from day to day. Therefore, the standard deviation of milk sales will be smaller than the standard deviation of umbrella sales (Pederzoli, 2017).
Standard deviation measures the dispersion of data from its expected value. The standard deviation used in making an investment decision to measure the amount of historical volatility associated with an investment relative to its annual rate of return. It indicates how much the current return is deviating from its expected historical average returns. For example, a stock that has high standard deviation experiences higher volatility, and therefore, a higher level of risk is associated with the stock.
SD = ??(Ri – Ravg ) / n -1
Ri – Return observed in one period (one observation in the data set)
Ravg – Arithmetic mean of the returns observed
n – Number of observations in the dataset