In common lingo, the word “paranoid” is often conflated with the word “phobic”. A person might proclaim another person paranoid if they perceive an unusual fear of something like water or the police. But that would actually be a phobia concern, not a paranoia concern.
Paranoia is distinct from phobia in that paranoia specifically involves cognitive deductions that pertain to suspicions. It is when a person deduces that the police are doing something in particular because they are pursuing him. To be “paranoid of water” would mean there was a belief that the water was actually behaving in some way because it is pursuing the person.
It is promoted that drugs cause paranoia, but in reality, any illegal activity; lying, stealing, assassination, drug use, or merely pornography or anything thought to be immoral is likely to inspire a sense of being watched and perhaps hunted.
Typically a psychologist considers a person paranoid if the person displays what the psychologist believes to be an inappropriate fear or suspicion. A more competent psychologist will ensure that the person is actually making cognitive deductions based on that suspicion. But does a psychologist really know what is inappropriate? Does he know the likelihood that a political conspiracy is actually taking place? A psychiatrist is typically going to declare a state of paranoia based on whether the suspicions are anti-socialistic.
To me it is more valid to ask a sociologist, political scientist, or social engineer if someone is paranoid than it is to ask a psychologist or psychiatrist. The sociologist might need a short explanation as to the exact definition of the concept, but a sociologist is more likely to know the state of society such as to know whether suspicions are realistic or inappropriate. The sociologist is more in tune with how often suspicions are justified in a society
Paranoia rises from a sense of insecurity that inspires the mind to begin speculating. It is normal and appropriate for a person who senses insecurity to speculate as to the cause. Without such an instinct, a species would never learn to avoid subtle real dangers. But when the deductive process gets deluded by being too narrowly focus on unlikely speculations compared to more likely scenarios, delusion overtakes the mind.
Delusions overtake a mind by the normal and healthy process of seeking out justification for belief. But the fact that such justifications were merely possibilities gets forgotten as further deductions are pursued.
In developing a delusion, a suspicion is generated then a defense for belief in the suspicion is generated so as to thwart doubt. Focus on the possibility of the suspicion being true tends to generate imaginative plausibility scenarios. When the mind forgets that each thought was merely a possibility, not a probability, these plausible scenarios add together to form an airtight case study. The belief becomes undeniable to the deluded mind.
Although without the insecurity paranoia is difficult to generate, the most significant culprit causing the end result of delusion is the loss of short-term memory skill. An insecure person who can think clearly might suspect the wrong scenario, but a delusion will not be established until they forget that they had only one suspected scenario out of other possibilities.
The lack of memory also makes deducing probabilities far more difficult resulting in making poorer guesses. A poor memory disallows the imagination from deriving all of the possibilities from which a probability can be validly deduced. Calculating a probability requires knowledge of all of the possibilities. Often the possibility that is left out of the calculation is merely the one that posits a serious lack of education or information on the subject. It is difficult to analyze how likely it is that you do not know enough to even make a guess.
Such deductions of probability occur deep within the subconscious and when they err, the conscious mind is only presented with the erroneous imagined scenario as though no other possibility could exist. This results in a firm belief as no other reasonable possibility can be imagined. And if the person is challenged, the natural social ego defense comes into play to divert embarrassment and further defend and seal the delusional state.
Thus the cause of paranoia is not merely feelings of insecurity and an imaginative mind, but actually it is the result of feelings of insecurity (possibly justified) and a failing or poor memory limiting the imagination to poor belief choices. Both medically induced from a variety of possible sources.
Memory problems in society are becoming even more prevalent than paranoia problems because… in case you don’t remember, they’re out to GET you. 
Imagination and memory do affect paranoia. You must be able to conceive of what-if scenarios and retain them long enough to link them. But even if you don’t link them, the feeling of security is false.