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Risk reward ratio |
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Risk reward ratioRelationship of substantial reward corresponding to the amount of risk taken; mathematically represented by dividing the expected return by the standard deviation.Risk reward ratio Similar MatchesRisk/rewardRisk/rewardComparison of the returns which can be earned from different types of financial instruments (bank deposits, bonds, shares, unit trusts, investment trusts, property) and the risks that are attached to them.Gilts (government bonds) are considered to be the safest investment of all, in the sense that the government is most unlikely to default either on the interest payments due, or the return of your capital. But the interest payable on gilts is relatively low, and may fail to keep pace with inflation.a capital sum deposited with a bank or building society is also very safe since it is unlikely that either will fail to pay the interest on the deposit or to return the capital.investment in equities (shares, mutual funds, unit trusts, investment trusts etc) will normally over the long term give greater returns but the risk is much higher. In the short term they could easily fall in value.Investors are often advised to build a balanced portfolio of investments to include low risk deposits for safety (bank deposits, bonds) and longer term higher risk instruments, such as equities, for greater potential growth. Reward to volatility ratioReward to volatility ratioRatio of excess return to portfolio standard deviation. |
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