Risk Curve

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  2. Risk Seeking

    The search for greater volatility and uncertainty in investments ...
  3. J-Curve Effect

    A type of diagram where the curve falls at the outset and eventually ...
  4. Yield Curve Risk

    The risk of experiencing an adverse shift in market interest ...
  5. Risk-Return Tradeoff

    The principle that potential return rises with an increase in ...
  6. Risk Lover

    An investor who is willing to take on additional risk for an ...
RELATED FAQS
  1. What are the most effective ways to reduce moral hazard?

    There are a number of ways to reduce moral hazard, including the offering of incentives, policies to prevent immoral behavior ... Read Full Answer >>
  2. What is the theory of asymmetric information in economics?

    The theory of asymmetric information was developed in the 1970s and 1980s as a plausible explanation for common phenomena ... Read Full Answer >>
  3. How does market risk differ from specific risk?

    Market risk and specific risk are two different forms of risk that affect assets. All investment assets can be separated ... Read Full Answer >>
  4. How is perpetuity used in the Dividend Discount Model?

    The basic dividend discount model (DDM) creates an estimate of the constant growth rate, in perpetuity, expected for dividends ... Read Full Answer >>
  5. How valid is the notion of economies of scope?

    The concept of economies of scope is widely accepted in both managerial and theoretical economics. It proposes that it is ... Read Full Answer >>
  6. How can a company resist a hostile takeover?

    Several different defense strategies can be applied by existing corporate boards to ward off a hostile takeover. The most ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Determining Risk And The Risk Pyramid

    Many investors do not understand how to determine the risk level their individual portfolios should bear.
  2. Options & Futures

    What Is Your Risk Tolerance?

    Forget the cliches and uncover how much volatility you can really stand.
  3. Options & Futures

    Options Risk Graphs: Visualizing Profit Potential

    With a single diagram, you can see how price, time and volatility affect potential gains.
  4. Options & Futures

    Calculating The Equity Risk Premium

    See the model in action with real data and evaluate whether its assumptions are valid.
  5. Fundamental Analysis

    The Equity-Risk Premium: More Risk For Higher Returns

    Learn how the expected extra return on stocks is measured and why academic studies usually estimate a low premium.
  6. Economics

    What Is Supply?

    Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics.
  7. Economics

    Modified Internal Rate of Return (MIRR)

    Modified internal rate of return (MIRR) is a variant of the more traditional internal rate of return calculation.
  8. Economics

    Understanding the Fisher Effect

    The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.
  9. Fundamental Analysis

    Explaining the Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio.
  10. Economics

    Where To Search For Yield Today

    It’s hard to miss that there has been a pronounced slowdown in the U.S. economy this year.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center