Systematization of Investment Risks
Abstract
Understanding investment risk requires not only measurement but also clear structuring of its sources and impacts. This paper proposes a heuristic framework for classifying investment risks by combining the probability of occurrence with the severity of potential losses.
The study introduces a matrix-based system that links different types of investments—such as equities, bonds, real estate, and derivatives—with various economic risk factors. Each combination is evaluated based on the degree of dependency, using a graded scale that reflects the likelihood of unfavorable outcomes.
The proposed systematization highlights that low-probability events are often associated with higher potential losses, while more frequent risks tend to have more limited impact. The framework provides a practical tool for analyzing risk exposure and supports more informed investment decision-making.
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