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Risk-return plot definition

A version of a scatterplot, in Finance it's the primary way we visualize the risk/return tradeoff.
  1. Define - Define a risk-return plot.
  2. Context - Use it in a sentence.
  3. Quiz - Test your knowledge.
by Paul Alan Davis, CFA, October 14, 2016
Updated: December 19, 2018
The term risk-return plot is called many things, but in Finance it has special meaning in that its axes are always in the same position. Keep reading.

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Risk-return plot

Beginner

Risk-return plot is a graph depicting portfolio or stock risk on the x-axis and return on the y-axis. This can be for historical, expected or forecast time periods. In Excel, it is generated using the X Y Scatter chart type.

Synonym: investment scatterplot, risk and return chart, risk return graph


In a Sentence

Doc:  Which of the three timeframes provides a more logical risk-return plot ?
Mia:  I think forecast because it is less impacted by outliers.

Video

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Video Script

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Quiz

Click box for answer.

A risk-return plot can be used for absolute risk, but not relative risk. | True or False?

False. It can be used for both.

Quetions or Comments?

Still unclear on the risk-return plot and all of the relationships it shows in financial modeling? Try out the course Quant 101.

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