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 ?
On a risk-reward basis, sukuk will continue to offer attractive and safe returns in comparison to other asset classes.
While on one hand, it can group partners more on a risk-reward basis, it also can create a second-class feeling among the income partners if not presented properly.
All new products and services will be offered on a risk-reward basis.
In Elling's opinion, the way to invest in the enterprise hardware space is on a risk-reward basis, favoring two types of stocks: