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The goal? To minimize potential losses and maximize opportunities. It involves a continuous cycle of identification, measurement, and mitigation. First, you identify potential risks – think market volatility, credit defaults, operational failures, and even cyber threats. Then, you measure those risks using statistical tools and models. This measurement provides a foundation for how to react. Finally, you take action to mitigate those risks, which could involve anything from buying insurance to hedging investments or diversifying a portfolio.
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