Risk Assessment Analysis

The connection between risk and return is an important concept, and it has numerous implications for both corporate managers and investors. There is a trade-off between risk and return. The average investor likes higher returns but dislikes risks. It follows that higher-risk investments need to offer investors higher expected returns. In other words, if the objective is higher returns, higher risks must be assumed. Hence, diversification is crucial due to the fact that by diversifying wisely, investors can dramatically reduce risk without reducing their expected returns.