# Section 4: Risk Estimation

In this lesson, risk estimation for the stock of different companies is discussed.

## We'll cover the following

## Risk

For the scope of our project, the *risk* relates to the amount of capital we could lose on our investment on a daily basis.

The daily risk for the companies stock prices can be calculated by taking the standard deviation of the daily returns. The daily returns and risks can be visualized using a scatter plot, which can give us a better understanding of the return vs. risk ratio of each company’s stock.

Let’s first calculate the average daily return and the risk. Here the risk is the standard deviation of all the daily return values. As mentioned in the statistical features lesson, the *standard deviation* measures how far the values are from the mean or average value. In our case, this distance from the mean value is the value or amount that we are putting at risk by investing in a certain stock.

To perform the following steps, all the preprocessing of reading the companies as variables and setting `Time`

as the index needs to be done again. So, for simplicity, these steps have been hidden in the following example.

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