What is a return on the risk?
Risk yield is a numerical value of the calculation of risk assessment applied to the investment. The income created by the investment is compared with the risk of investment, resulting in a ratio. Adjustments modified to risk can be used for individual securities, securities portfolio or fund. Different forms of risk measurement provide investors diverse methods of return on risk assessment.
Investment performance analysis is usually based on the return on investment (ROI). ROI is a simple performance ratio used to evaluate the effectiveness of the investment. The quick and easy ROI method does not take into account the amount of risk that is assumed that profit. The risk is the most important aspect of trading on financial markets. Investments with a theoretical risk of zero, such as US Treasury accounts, the smallest revenues. Comparison of investment using the return on risk modified to the investor helps the investor which investment is more suitable for the tolerance of purpose and risks. Provides a useful wayhow to compare different investments with different levels of risk. A rational investor comparing two investments with the same yield would choose the lowest risk. In order for the investor to take a greater risk, the investment would have to create a relatively greater risk ratio.
Sharpe ratio, developed by William F. Sharpe, suggests whether the performance of investment is the result of excess risk. Different market conditions, such as a strong bull market, can bring strong profits. The same investment under different market conditions can produce different results. The question is whether the investment produces a lot of profit due to accidental events or wise investment decisions.
Sharpe variants use different variable volatility to specify market conditions. Such formulas include the Treynor ratio, the Sortino ratio and the modified Sharpe ratio. These variations use statistical measurements such as standard deviation, R-coneand beta. Comparison of risk -free and benchmark yields is used to determine the quality of the investment.
All payback methods modified at risk are widely used, but still theoretical in nature. If a perfect formula was developed, there would be no discretion and all investments would be black or white. These analysis methods are best used to compare investments with the relevant market benchmarks. Possible other formula will provide the ratio ratio.