Risk-Reward Relationship
The risk-reward relationship is a concept in finance that describes the relationship between the level of risk and the expected return of an investment. It is a fundamental principle of investing that states that the higher the risk, the higher the return. In other words, investors must be willing to take on greater risk in order to receive higher returns. The risk-reward relationship is an important concept for investors to understand, as it can help them make informed decisions about their investments.
History of the Risk-Reward Relationship
The risk-reward relationship has been around since the early days of investing. The concept was first introduced by the French mathematician and economist Antoine Augustin Cournot in 1838. Cournot argued that the expected return of an investment should be proportional to the risk taken. This idea was later expanded upon by the American economist Irving Fisher, who argued that the expected return of an investment should be equal to the risk-free rate plus a risk premium. This concept has since become a cornerstone of modern finance.
Risk-Reward Relationship Table
| Risk Level | Expected Return |
|---|---|
| Low | Low |
| Medium | Medium |
| High | High |
Summary
The risk-reward relationship is an important concept in finance that states that the higher the risk, the higher the return. It is a fundamental principle of investing that has been around since the early days of investing. Investors must understand the risk-reward relationship in order to make informed decisions about their investments. For more information about the risk-reward relationship, investors can visit websites such as Investopedia, The Balance, and Investing.com.
See Also
- Risk-Return Tradeoff
- Risk Aversion
- Risk Premium
- Portfolio Risk
- Systematic Risk
- Unsystematic Risk
- Volatility
- Beta
- Sharpe Ratio
- Value at Risk
