Risk Risks
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Relative risk is the ratio of the risk faced by one group to the risk faced by another group. This can be used to express the risk of a state, behavior or strategy as compared to a baseline risk.
CalculationRelative risk is based on the probabilities of risk for two different groups as follows.Relative risk = group-1-probability / group-2-probabilityExample #1People who smoke have a 10% lifetime chance of developing a particular type of cancer. Non-smokers have a 0.5% chance of developing the cancer.Relative risk = 0.10 / 0.005 = 20This means that smokers are 20 times as likely to get the disease as non-smokers.
Example #2Snowboarders in their 20s have a 1% chance of an injury requiring a hospital visit in a year. Non-snowboarders in their 20s have a 0.5% chance.Relative risk = 0.01 / 0.005 = 2As such, snowboarders in this age group are twice as likely to require a hospital visit for an injury.Example #3A company with a high debt load has a 40% chance of going bankrupt in the next 5 years. The average for comparable companies of the same size is a risk of 0.5% over five years.Relative risk = 0.40 / 0.005 = 80The company is 80 times more likely to go bankrupt than its peers.NotesExamples are illustrative.|
| Type | | | Definition | The ratio of the risk faced by one group to the risk faced by another group. | | Also Known As | Risk Ratio | | Related Concepts | |
Risk Management
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