Risk Curve

DEFINITION of 'Risk Curve'

A two-dimensional plot of real or projected financial harm/risk (vertical axis) versus real or projected financial reward (horizontal axis). Generally speaking, the curve balloons when the underlying item offers greater returns and contracts when it offers lower returns compared to risk.

BREAKING DOWN 'Risk Curve'

Risk curves can be plotted using practically anything for variables, as the very existence of a curve tends to suggest a relationship or correlation. A risk curve allows for an instant summation of the risks involved in a particular endeavor, making it very easy to use as a decision-making tool.

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