What is Risk? What is Volatility?
Risk is a difficult term to define. In finance, risk is usually defined as the possibility that an investment’s expected return will be different from it’s actual return. For most people, risk is thought of as the possibility of permanently losing your money. Whichever definition you prefer, it is important to note that risk is not the same as volatility. Volatility refers to the degree of fluctuation and variation of a security’s value over a period of time. You can think of volatility as the degree of fluctuation of a stock’s price over time. A volatile security will have higher swings in its price, both up and down.
Different securities have their own risks and volatility. For example, stocks are considered riskier than bonds. But not all stocks have the same risk and volatility profile. The same can be said for bonds. For example, high yield bonds have a higher credit risk when compared with government bonds.
Diversification and Risk Reduction
Diversification is a technique in which you mix a wide variety of investments in a portfolio. It is one way you can reduce investment risk. Ideally, the holdings will have little correlation with each other. Diversification can be achieved by investing in a different number of securities within an asset class. For example, instead of owning only one company’s stock you invest in a number of stocks from different companies. Investing in an index fund, such as the S&P 500, is an easy way to have a diversified holding of equities. In one fund, you essentially have shares of all 500 companies on the index. Having a diversified portfolio among different asset classes, such as stocks and bonds, can also help with reducing risk. It can also help in terms of reducing volatility when compared with an all-equity portfolio.
We automatically think of Bitcoin or cryptocurrencies in general when we hear the phrase “Blockchain.” This technology, however, has considerably more potential, which is why it is regarded the technology of the future together with AI, the 5G network, and the Internet of Things..With the ever-increasing flow of data in today’s digital environment, it’s imperative that businesses prioritise data management and the safety and speed of their operations and transactions.
It used to be necessary to rely on intermediaries to help confirm the accuracy of the information in order to grant their approval for the transactions they supported to go forward. For transaction security, this was a time-consuming and expensive condition, even if it occurred on a daily basis.That trend was disrupted by blockchain, a new technology. Because of the open and decentralised nature of the cryptographic code, information security and data inviolability are both assured, which saves both time and money.
Benefits of Using Blockchain Technology
For these reasons, blockchain technology is gaining traction across a wide range of industries and is being implemented more fully.
These are a few of the advantages:
More safety at a lesser price. As previously stated, P2P transactions using Blockchain technology are safe, dependable, and unrecoverable. Since an intermediary is no longer required for data validation, the overall cost of this approach is reduced greatly as well.
Authenticity and long-term viability. The data associated with any transaction on the Blockchain, after it has been validated by the network’s miners, cannot be altered or even deleted.Anonymity. You will only be able to witness the validation of a transaction in the blockchain at the time of that validation. As a result, the user’s previous transactions, such as obtaining products or services, or any other network where another operation has been carried out, will never be made public.
Speed. As a result of decentralisation, activities may be validated almost immediately and inviolably because there are no government agencies or intermediaries involved in the administration of information and because the information is open source.
industries in which blockchain is being utilised
Data administration is made easier because to the notion of encrypted, open, and decentralised code in the Blockchain technology. As data is now generated for nearly every conceivable action, the potential for Blockchain to be used in any setting is virtually limitless, for example:
Finance. Cryptocurrencies and the Decentralized Finance (DeFi) revolution, which includes a wide range of smart contracts and services, but with the unique feature of being person-to-person, safely, rapidly, and reliably because there is no need for financial middlemen.
Bureaucracy. As an illustration of how Blockchain might be used for the greater good, look no further than the country of Estonia. The government is able to communicate with its citizens 24 hours a day, seven days a week, thanks to the use of this technology.
Energy. This information can be accessed by both companies and end-users because to the Blockchain’s ability to decentralise information. This allows users to know how much energy flowed through a node in an order, the source, and which plant it originated from.
Just a few instances of how Blockchain is already being used to combat electoral fraud, sports betting, network identity, digital marketing, consumption, etc. Because of this, this is the technology of the present that will influence the future.