What is the Relationship Between Risk and Return?
The relationship between risk and return means that taking on more risk can offer the chance for higher rewards, while lower risk typically leads to more modest potential returns.
by Sai V
Published Oct 20, 2023 | Updated Oct 20, 2023 | ๐ 1 min read
Article continues below advertisement
What is the Relationship Between Risk and Return?
The relationship between risk and return, known as the risk-return tradeoff, states that higher risks are associated with the potential for higher rewards, and vice versa. Investors accepting higher levels of uncertainty have the chance for greater profits, while those opting for lower risk face more modest potential returns. This principle emphasizes the importance of balancing risk tolerance with investment goals to optimize the relationship between potential gains and potential losses.
Risk
Risk in finance is the chance of actual investment gains differing from expected outcomes, potentially leading to partial or total loss of the original investment. Strategies like diversification and hedging are used to mitigate these uncertainties.
Return
A return is the change in value of an investment over time, expressed as either a nominal or percentage change, indicating profit or loss.
Related Articles
Quiz Questions On Insurance and Risk Management - 3
793 days ago
Quiz Questions on Credit Management and Awareness
794 days ago
Disclaimer : The above information is for general informational purposes only. All information on the Site is provided in good faith, however we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability or completeness of any information on the Site.