The taxonomic investment risk measure is a composite value, a resultant of all the variables (economic and financial ratios) describing the condition of sectors. The condition of sectors is evaluated by comparing the value of the selected variables for these units with their value for a hypothetical sectors, i.e. a "model sector".

The starting point for creating the taxonomic investment risk measure is to calculate the value of variables for the model sectors. These are the optimum values of the respective variables that describe the condition of sector. For stimultant variables these are the maximum levels, and for destimultant variables - the minimum levels observed among all the sectors subject to the comparison. If a comparative analysis covers several periods, optimum values are set as the lowest or highest values recorded among all the sectors under comparison in all the periods subject to analysis. A model sector is therefore an ideal standard, to which all other sectors are compared. Formally, the sectors being compared and the model sectors are represented by points in the space of variables that describe them. The dimension of space (the number of axes that determine the dimension) is equal to the number of variables that describe the condition of sectors. The next step is to standardize the value of selected variables. This allows one to eliminate measurement units and avoid a higher share of variables with a higher level in the value of the investment risk measure.

Values of composite risk measures (just as group risk measures) are obtained by calculating the distance of respective points representing sectors from the point representing the model sector. The better the condition of a sectors (lower investment risk), the shorter the distance from the point representing it to the point representing the model sector. Due to the appropriate normalization, both group risk measures and the composite risk measure are always within the range of [0;1]. The lower the investment risk (i.e. the better a sector condition is), the lower the corresponding risk measure (closer to zero). The higher the investment risk (i.e. the worse a sector condition), the higher the corresponding risk measure (closer to one).