Risk-return trade-off

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Risk-return trade-off

The tendency for potential risk to vary directly with potential return, so that the more risk involved, the greater the potential return, and vice versa.

Risk-Return Trade-Off

The concept that every rational investor, at a given level of risk, will accept only the largest expected return. That is, given two investments at the exact same level of risk, all other things being equal, every rational investor will invest in the one that offers the higher return. The risk-return tradeoff is pervasive throughout economics and finance. It is the reason that riskier bonds pay higher coupons than other bonds. It is also the reason that bonds pay lower returns than most stocks because they are a less risky investment. The Markowitz Portfolio Theory attempts to mathematically identify the portfolio with the highest return at each level of risk. See also: Markowitz Efficient Portfolio.
References in periodicals archive ?
The framework will drive them to become more vigilant in optimising their risk-return trade-offs, which in turn, will facilitate sustainable growth and development.
Table 5 Risk-Return Trade-offs (for Year 2012) Hedge Portfolio Portfolio Increase Reduction Cost Ratio, h Return Variance in Cost in Risk Elasticity Hedging with One Month Futures 0.
Keywords: Risk-return Trade-off, Hedging, Oil Prices
Mitra is primarily engaged in economic and financial analysis of transactions between related entities of a multinational enterprise for the determination of arm's length prices, in valuation of intangible property, and in the measurement and benchmarking of risk-return trade-offs.
Review existing SME portfolio and assess the risk-return trade-offs
He explicitly considered the risk-return trade-offs in making a selection.
It is remarkable that he, two thousand years earlier than Bernoulli (or Shakespeare), considered risk-return trade-offs in making choices involving risky situations.
The authors provide an analytically convenient continuous-time approximation and show how subjective rates of time preference affect risk-free rates but not instantaneous risk-return trade-offs.
Connolly indicated that advisors will now have access to the next version of Putnam FundVisualizer, allowing them to choose and package a virtually unlimited number of potential fund holdings, assign specific weightings and adjust time periods as desired, to gain insight into the performance behavior and importance of risk-return trade-offs of uniquely constructed portfolios and their underlying components.
In the meantime, investors should continue to focus more attention on selected emerging markets, where risk-return trade-offs are likely to continue to be more attractive than for developed markets.
Our goal was to develop a list of outstanding mutual funds offering a full spectrum of risk-return trade-offs, especially in these uncertain economic times, and the UMB Scout WorldWide Fund fit the bill perfectly," said Gittelson.
Used in conjunction with a proprietary "scenario generator," these models can help measure the risk levels of insurance businesses and evaluate risk-return trade-offs of alternative business strategies.