Risk and Return

Risk and Return

Introduction

The chapter is about allocation of resources in international securities in order to enhance the rate of return as compared to risk. The increase in investment in varied forms of portfolio enable the investors to avail the opportunities to diversify their portfolios in order to reduce or minimize risk as much as possible. Hedging is a way of investment that enables the firms to reduce the amount of losses as much as possible with investing in an area that provides return to the firm. The chapter enables us to make decisions about making an investment that increases the return and minimizes the risk by following the principle of diversification. The following answers will decide whether Thom York should invest and increase its Sharpe ratio of portfolios or should opt for any other investment in order to increase profitability.

Discussion

Thom York is a variant investor that has invested in a diversified way its portfolios. The investors have been provided opportunity to invest in portfolio of the funds in emerging markets. The return offered in the investment is reasonable and the risk free rate of 5% attracts the investor to invest as the emerging markets have potential to provide better returns for the investors in the years to come. The Sharpe ratio will provide a measurement of average access return in relation to the volatility of the returns. The international diversification benefits the Sharpe ratio and the lower the risk the better the return of the portfolio. Sharpe ratio can only be affected by the return on the amount of correlation that can increase or decrease due to several factors like trade, geographical limitation, industrial structure and irrational investors. Thus Thom York should invest in STCMM that has more returns and lesser volatility as compared to investment of the emerging ...