Page 22 - DBP5043

RISK FOR EVERY RETURN – COEFFICIENT OF

VARIATION (CV)

Coefficient of variation is a standardized measure of a risk per unit
of expected return. It is the ratio of the standard

deviation to the expected return. Thus, it is said to be measure of
relative risk. Coefficient of variation (CV) provides

a meaningful basis for a comparison when the expected return and
the standard deviation of alternative

investments are not the same.

Variation coefficient (CV) = Standard Deviation (б )

Expected rate of return ( )
R

From example 3 and example 4, calculate the CV for the shares.

** RELATIONSHIP BETWEEN RISK AND RETURN

All investments have risk, but some investments are riskier than others
– there’s a greater chance you could lose some or all of your money.
In general, higher-risk investments offer higher potential returns, and
lower-risk investments offer lower returns.