Another term used to describe investment risk is:

• A. Correlation.
• B. Volatility.
• C. Concentration.
• D. Maximisation.

Answer: (B)

Volatility captures how much investment returns swing over time. It’s used as a proxy for investment risk because when prices move up and down by large amounts, the future value of the investment becomes more uncertain. The bigger the price swings, the wider the range of possible outcomes, which translates into higher risk. In practice, volatility is often measured by the standard deviation of returns, quantifying how much returns typically deviate from the average.

Correlation describes how two assets move in relation to each other; it’s important for diversification but isn’t itself a single measure of risk. Concentration risk arises from having too much exposure to a single asset or sector, which is a specific risk due to lack of diversification rather than a general measure of risk. Maximisation is a goal or objective, not a risk metric. So volatility best represents the general notion of investment risk.