What is risk and return in investment management?
Table of Contents
- 1 What is risk and return in investment management?
- 2 How would you describe the return and risk?
- 3 What is portfolio risk and returns?
- 4 How will an investor describe the relationship between risk and return?
- 5 What is risk in financial management?
- 6 What is portfolio management risk?
- 7 How do you manage portfolio risk?
What is risk and return in investment management?
The relationship between risk and return is a fundamental investment concept. The return is expressed as a percentage and refers to the gains or losses made from an investment, whereas the risk element is associated with the volatility of that return.
How would you describe the return and risk?
It is the uncertainty associated with the returns from an investment that introduces a risk into a project. The expected return is the uncertain future return that a firm expects to get from its project. Risk is associated with the possibility that realized returns will be less than the returns that were expected.
What is portfolio risk and returns?
Portfolio risk is a chance that the combination of assets or units, within the investments that you own, fail to meet financial objectives. Each investment within a portfolio carries its own risk, with higher potential return typically meaning higher risk.
How would you describe investment risk?
Definition: Investment risk can be defined as the probability or likelihood of occurrence of losses relative to the expected return on any particular investment. Most investors while making an investment consider less risk as favorable. The lesser the investment risk, more lucrative is the investment.
How are risk and return related to investment objectives?
Generally, the higher the potential return of an investment, the higher the risk. There is no guarantee that you will actually get a higher return by accepting more risk. Diversification enables you to reduce the risk of your portfolio without sacrificing potential returns.
How will an investor describe the relationship between risk and return?
A positive correlation exists between risk and return: the greater the risk, the higher the potential for profit or loss. Using the risk-reward tradeoff principle, low levels of uncertainty (risk) are associated with low returns and high levels of uncertainty with high returns.
What is risk in financial management?
In finance, risk refers to the degree of uncertainty and/or potential financial loss inherent in an investment decision. In general, as investment risks rise, investors seek higher returns to compensate themselves for taking such risks. Every saving and investment product has different risks and returns.
What is portfolio management risk?
Portfolio risk management is the collection and analysis of risks across individual portfolio investments, such as stocks, bonds, money market funds, and cash. Risk is the probability that actual investment returns are less than those that are projected.
What is a portfolio risk?
Portfolio risk reflects the overall risk for a portfolio of investments. It is the combined risk of each individual investment within a portfolio. The different components of a portfolio and their weightings contribute to the extent to which the portfolio is exposed to various risks.
How do you explain risk management?
In business, risk management is defined as the process of identifying, monitoring and managing potential risks in order to minimize the negative impact they may have on an organization.
How do you manage portfolio risk?
Five Portfolio Risk Management Strategies:
- Establish a Probable Maximum Loss Plan. A probable maximum loss plan is the first step in avoiding losing a large chunk of your portfolio.
- Implement a Tactical Asset Allocation.
- Require a Margin of Safety.
- Avoid Portfolio Volatility.
- Rethink Your Time Horizon.