Risk-Reward Ratio

The Risk-Reward Ratio estimates the likely return of a Trade against its related risk. An ideal ratio shows that the potential prize legitimises the risk in question.

Example: Wagering on a pony with high chances implies higher liability yet additionally more noteworthy possible prize.

Investment Scenario	Risk Level	Reward Potential	Risk-Reward Ratio
High-Risk Investments (e.g., Cryptocurrencies, Penny Stocks)	Very High	Very High (potential for significant gains)	1:4 or higher (High reward for high risk)
Moderate-Risk Investments (e.g., Mutual Funds, Growth Stocks)	Moderate	Moderate to High (stable growth with some volatility)	1:2 to 1:3 (Balanced risk and reward)
Low-Risk Investments (e.g., Bonds, Fixed Deposits)	Low	Low to Moderate (stable returns, minimal volatility)	1:1 or lower (Low reward for low risk)
Very Low-Risk Investments (e.g., Savings Accounts, Treasury Bills)	Very Low	Very Low (minimal growth)	1:0.5 or lower (Minimal reward for minimal risk)

Volatility and Its Impact on Stocks

Volatility alludes to the degree to which a stock's price changes after some time. High Volatility can introduce valuable opportunitys for better yields, yet it likewise conveys the risk of more noteworthy losses.

Example: Volatility resembles an exciting ride; exciting however Riskous in the event that the ride ends up being excessively wild.

Diversification and Portfolio Management

Diversification is the technique of spreading investment across different assets types to decrease risk. A differentiated portfolio adjusts chance and likely re-visitations of protect against market changes.

Example: Not tying up your assets in one place guarantees that assuming one bushel drops, others stay in salvageable shape.

Aspect	Diversification	Portfolio Management
Definition	Spreading investments across different assets or sectors to reduce risk.	Strategic selection and management of investments to achieve specific financial goals.
Focus	Minimizing risk by avoiding concentration in a single asset or sector.	Balancing risk, returns, and asset allocation to optimize overall portfolio performance.
Objective	To lower risk by ensuring that poor performance in one investment does not affect the entire portfolio.	To maximize returns while managing risk according to the investor's goals and time horizon.
Process	Involves selecting a variety of asset classes, sectors, or geographies.	Involves continuous monitoring, rebalancing, and adjusting asset allocation.
Risk Level	Focuses on reducing unsystematic risk.	Manages both systematic and unsystematic risk through proper strategy.
Scope	A part of portfolio management strategy to ensure safety.	A broader concept that encompasses diversification, risk analysis, and performance tracking.
Best For	Investors looking to minimize exposure to any single asset or market risk.	Investors looking for comprehensive financial planning and long-term wealth management.