Essay on Risk And Return Trade Off Memo

Essay on Risk And Return Trade Off Memo

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Risk and Return Trade off Memo
To: Rainier Ekstrom
From:
Subject: Investment Strategy and Performance
The company provided me with eight different stocks which were available for investment at this time. In order to make the best decision for the company I chose those which I believed to have the best relationship between risk and return. The returns needed to be high whilst minimizing the risk involved with said investment. After consideration I chose the following investments, which I believed would be best for the company: Desktop Inc., Levinthal Defense Systems, Transconduit Inc., and Goldstein & Delaney Bank.
The investments I chose were very diverse and I focused on trying to expand the number of industries within the portfolio whilst also creating the best possible returns with the lowest risk. After some consideration it was brought to my attention that Desktop Inc. and Transconduit Inc. had very high risk and this could make them unattractive to have in a portfolio. Whilst the other investments I chose has average risk and lower returns, this isn’t necessarily a bad thing but some of the other investments had a better relationship between the risk and return.
After choosing the stocks that were to be invested in the company provided funding of $800,000 which was to be used in investments which would maximize returns without taking portfolio risk over 22%. At which point I chose to invest into one high risk and high return stock and one of the average risk and lower returns. This was to ensure that the portfolio was not relying on high risk high return stocks in order to make profits. So I invested $200,000 into both Desktop Inc. and also Levinthal Defense Systems. This created a portfolio return of 8.31% whilst keeping ...


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...ain, some industries thrive in different situation, having a variety of industries involved means that different markets will peak at different times. Over time this will allow investors to see the trends in the market and take advantage of them.
Another very large recommendation is to use the Sharpe ratio more effectively when considering investment. As earlier stated it allows comparison between stocks and this would present the risk and return relationship better, allowing for better decision to be made. The only thing the investor will need to look for is a high Sharpe ratio which indicated high returns in relation to risk. This will allow the investors to assess the stock before they commit to the investment, they will gain more of an understanding of the risk and return relationship for each stock and this will allow them to make more of an educated decision.

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