In short
- Risk is the possibility that the result differs from what is expected, including a loss.
- Volatility measures the size of a price’s changes.
- Diversification reduces the risk specific to one company, not the risk of the whole market.
The main risks
| Risk | What it is | Example |
|---|---|---|
| Company | Specific to one business | Poor results or a lost contract. |
| Market | Affects almost all stocks | A general stock market fall. |
| Liquidity | Difficulty buying or selling | A rarely traded stock. |
| Interest rate | Linked to interest rates | A falling bond price. |
Volatility, in plain words
Take two made-up shares, both worth 100 dirhams. The first often moves between 98 and 102 dirhams, the second between 80 and 120 dirhams. The second is more volatile. This does not mean it will fall, but that the possible short-term gap is larger, in both directions.
The surprising maths: losing, then gaining back
A fall and a rise of the same percentage do not cancel out:
| Fall | Rise needed to get back to the start |
|---|---|
| −10% | +11.1% |
| −20% | +25% |
| −50% | +100% |
What diversification does
Diversifying means spreading an amount across several securities, sectors or types of investment. A made-up example: a portfolio of 10,000 dirhams split equally across 10 shares. If one loses 50%, the loss is 500 dirhams, or 5% of the portfolio. If everything were in that one share, the loss would be 5,000 dirhams.
The limit is clear: in a general fall, most stocks can drop together. Diversifying reduces one type of risk, without removing it and without guaranteeing a gain.
Time and risk
Over a few weeks, price changes are very hard to predict. This is why shares are generally presented as a long-term investment. Time does not remove the risk: a company can stay in difficulty for years.
This guide explains general ideas. It does not take your situation into account and is not investment advice.
Frequently asked questions
Are risk and volatility the same thing?
No. Volatility measures the size of changes. Risk also includes bankruptcy, lack of liquidity and permanent loss.
How many stocks do you need to be diversified?
There is no official number. The result also depends on the sectors and on how the stocks are linked.
This article is for information and educational purposes only. It is not investment advice or a recommendation to buy or sell any security. Investing in shares involves a risk of capital loss. Check figures against official sources (Casablanca Stock Exchange, AMMC) and consult a licensed professional. Read the full disclaimer.
