Risk literacy

Volatility, drawdowns and the different meanings of risk

Risk is not a single number. Different decisions can be exposed to different kinds of uncertainty.

Volatility

Volatility describes how widely prices move over a period. It is useful, but it does not capture every form of financial risk.

A drawdown measures a decline from a previous peak. Its size and duration can matter differently depending on liquidity needs and time horizon.

Narrow exposure can make outcomes more dependent on one sector, issuer, geography or factor.