An increasing number of online tools are available to help investors learn more about risk and avoid...
An increasing number of online tools are available to help investors learn more about risk and avoid the losses experienced in the past two years.
One, Riskgrades, has been around for some time, but it has recently been joined by tools from Italian derivatives trader TradingLab and UK IFA Bestinvest.
Riskgrades is a tool for comparing levels of risk between different investments.
It does this by measuring the volatility of an asset's price, then comparing that volatility to the volatility of a basket of global equities.
The methodology results in a grade between 0-1,000 - with 0 being the lowest risk - which can then be directly compared with other grades.
For example, if a stock has a Riskgrade of 300, then it is five times more risky than one with a grade of 60.
Cash has a Riskgrade of 0, and the system can account for foreign currency risks by taking into consideration the domicile of the investor in relation to the location of the asset being bought, such as shares in a German company being bought by a US investor.
A new complement to Riskgrades is Kilovar, currently being promoted in the UK ahead of the start of trading in covered warrants on the London Stock Exchange.
Kilovar has been developed by TradingLab, which is one of six market makers taking part in the covered warrants market launch in the UK.
The system gives a risk rating for any sort of traded financial instrument, such as shares, gilts and unit trusts, and gives a grade between 1-1,000.
Hence the name Kilovar, where "Kilo" represents 1,000 and "var" represents "value at risk" methodology, which in turn is based on complex mathematical formulas.
The company behind Kilovar claims it provides absolute values compared to Riskgrades' relative values.
An investment with a Kilovar score of 50KV means that a £1,000 investment runs the risk of losing £50 from one day to the next, although the developers of the system admit that as a statistical measure it leaves open the theoretical risk of actual losses being higher than the score implies.
Bestinvest's tool is intended to help investors track the long-term performance of fund managers regardless of which funds they are in charge of.
Bestinvest says that fund managers switch funds every 3-4 years on average, meaning it makes more sense to track the performance of the manager than the fund when using past data to predict future performance.
The company warns that of course its tool should not be used exclusively to make investment decisions.
Fund managers' performances can often change, Bestinvest says, because of factors beyond their control, such as "massive fund inflows, which require a change of style".
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