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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RELATED FAQS
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    Learn why economists believe the term structure for interest rates reflects investor expectations for future interest rates ... Read Answer >>
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    Learn about the yield curve, and discover why this chart is an important economic indicator. How do Treasury bond yields ... Read Answer >>
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  4. What does the yield curve actually predict?

    Find out what an inverted yield curve represents, how it has performed as a leading indicator and why it appears to hold ... Read Answer >>
  5. What is the current yield curve and why is it important?

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