Need for Risk Analysis

Risk arises out of the fact that returns do not remain constant, every change in return is a situation of risk for the investor. The simplest way to measure risk is to find out, over a period of time, what is the average return from investing in a fund. Then finding out how the actual returns are distributed around the average return of the fund. If the actual returns earned by investor are close to the average, such a fund is less risky. If the return varies by larger amounts, around the average, the fund is more risky.