The broadest measure of risk is the computation of the portion of assets invested in stocks compared to one's non-stock assets. The measures of invested assets have more to do with the particulars of our age, financial situation, and risk tolerance. It is important to realize that risk serves a broad purpose. It makes the investor analyze how much loss of wealth they are willing to forgo in order to be at ease with the portion of wealth invested. This is the essence of volatility or the variability of the equity portfolio. This allows the investor to add or subtract risk at the margin, proportionate to our needs, rather than as an absolute dollar amount.
Portfolio risk can be divided into many categories that suffer from overlap or irrelevance to the individual's circumstances. The important issue is that each risk measure can only demonstrate one aspect of the portfolio's qualities. That said, research would broadly group the separate portfolio risks into the following categories.
It would be standing logic on its head if all one had to do was find terrible companies in terrible industries and use that metric for expecting high returns. There is a point of diminishing returns for distressed stocks. Some companies just never make it through their current travails so the expectations of major returns never occur. In fact the only returns are those found in the liquidation of the company. The real market mavens separate the appearance of risk against the actual risk of a security – the mispricing of risk/reward balance of an equity in the market.
If you buy the exchange traded fund for the Dow Jones Industrial Average ( DIA) you own large companies with international businesses. The Russell 3000 (NBA) represents the smaller capitalization companies on publicly traded markets. The result is that the macroeconomic influences, international and domestic economies affect large and small companies differently. If you don't know which sector or management style to invest in get professional help – use a broad based mutual fund and be immediately diversified into many different styles and sectors.
It's important to remember that a physical company's assets and liabilities do not change very much on a daily basis. It is the public's determination of a company's price, Warren Buffet's 'Mr. Market,' that produces great variations every day or even hour by hour. But daily volatility can say as much for the liquidity of the individual investor as it can for the company's stock. Liquidity needs must be suitable to an equity's volatility. Otherwise, the better diversified portfolio would have been a combination of equities and fixed-income securities. This is the practical effect of our earlier point -- that the broadest measure of risk is the size of the equity portfolio relative to other investment choices available to the investor.