Risk-Return Trade-Off
5paisa Research Team
Last Updated: 26 Feb, 2025 11:35 PM IST

Content
- What is the risk-return trade-off?
- Understanding risk-return trade-off
- Importance of risk-return trade-off in mutual funds
- Uses of risk-return trade-off
- How is risk-return trade-off calculated in mutual funds?
- Is it better to use the alpha, beta, or Sharpe ratio?
- How is the risk-reward ratio calculated?
- Do investments with higher risks yield better returns?
- Conclusion
Risk-return trade-off means that with an increase in the potential return, the risk also increases. Every individual invests in the stock market by following a strategy to achieve short-term or long-term investment goals. Earning profits comes with a set of risks, which every investor has to factor into their strategy.
As per most investors, risk exposure directly affects the profit potential for every investment instrument. They believe that with higher risk comes opportunities for higher profits. Let us understand what is a risk-return trade-off.
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