What Is the Risk-Reward Ratio?

The risk-return ratio is the additional risk compensation rate required by the investor to bear the risk. The risk-return ratio includes the default risk-return ratio, liquidity risk-return ratio, and maturity risk-return ratio.

Risk-reward ratio

The risk-return ratio is an additional requirement that investors assume the risk

Risk magnitude and risk price. In the risk market, the level of risk price depends on the degree of investor preference for risk.

Risk-reward ratio includes

Rr = * V

Where: Rr is the risk-return ratio;

is the value-at-risk coefficient;

V is the standard deviation rate.

Rr = * (Km-Rf)

Where: Rr is the risk-return ratio;

is the value-at-risk coefficient;

Km is the average return rate of the market portfolio;

Rf is the risk-free rate of return

(Km-Rf) is the average risk-reward ratio of the market portfolio

The risk-return ratio is the difference between the return on investment and the risk-free return;

The risk-return ratio is the product of the value-at-risk coefficient and the standard deviation rate;