Accounting Best Practices, Fifth Edition

11–20. Use Internet-Based Risk Measurement Services

Anyone who invests in various types of equity on behalf of a company may, from time to time, have a queasy feeling that there is some degree of risk associated with those investments, but has no way of quantifying it without paying for the services of a finance expert. Also, it may be useful to report to senior management on the measured risk of the current basket of investments, if only to provide a defense in case there is a drop in their value at some point in the future. This valuable risk analysis tool is now available through the Internet at www.riskgrades.com.

This on-line service grades the risk of any equity that the user enters into the system, reviewing its equity, interest rate, currency, and commodity risk. This results in a “RiskGrade” that is an indicator of risk based on the volatility of returns. RiskGrades are determined by comparing the current estimated return volatility of an asset to the market-cap weighted average return volatility of a set of equity markets during normal market conditions. A RiskGrade of zero indicates price volatility of zero (as would be the case for pure cash holdings), with higher RiskGrade ratings indicating a higher degree of volatility. These RiskGrade scores can then be used to compare the risks of various assets or entire portfolios.

Cost:

Installation time: