2. Stock prices and stand-alone risk Risk is the potential for an investment to generate more than one return. A security that will produce only one known return is referred to as a risk-free asset, as there is no potential for deviation from the known expected outcome. Investments that have the chance of producing more than one possible outcome are called risky assets. Risk, or potential variability in an investment’s possible returns, occurs when there is uncertainty about an investment’s future outcome, such as the return expected to be generated by the investment and realized by an investor. You invest $100,000 in only one stock. What kind of risk will you primarily be exposed to? Portfolio risk Stand-alone risk Generally, investors would prefer to invest in assets that have: a high level of risk and low expected returns. a low level of risk and high expected returns.