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Risk & Portfolio Management

Risk-Reward Ratio

The ratio of a position's intended gain to the loss that would be taken if the thesis fails.

Risk-Reward Ratio = (Target Price - Entry Price) / (Entry Price - Stop Price) ratio (x, times) Market Psychology & Behavioural Finance

Risk-Seeking Behaviour

Preferring an uncertain outcome to a certain one of the same expected value, typically when facing losses.

Test: the gamble is preferred to a certain outcome of equal or higher expected value, usually in the loss domain qualitative Funds, ETFs & Index Investing

Riskometer

SEBI's mandated six-level graphic indicating a mutual fund scheme's risk, disclosed monthly.

Levels: Low, Low to Moderate, Moderate, Moderately High, High, Very High, computed from the portfolio's own risk characteristics qualitative Orders, Execution & Market Structure

Rolling Settlement

A system in which every trading day is a separate settlement cycle, so trades settle a fixed number of days after execution.

Test: each trade date has its own settlement date; there is no fixed weekly or fortnightly settlement day qualitative Derivatives, Futures & Options

Rollover

Closing a derivative position in the expiring contract and opening the equivalent position in the next expiry.

Rollover Cost = Price of the Far Contract - Price of the Near Contract, per unit index points Technical Analysis & Chart Patterns

Rounding Bottom

A gradual, curved transition from decline to advance over an extended period, with no sharp low.

Test: successive lows form a shallow concave curve over many periods, with volume typically contracting into the base and expanding on the advance qualitative Funds, ETFs & Index Investing

Rupee Cost Averaging

The effect by which investing a fixed amount regularly buys more units when prices are low and fewer when they are high.

Average Cost per Unit = Total Amount Invested / Total Units Purchased ₹ Economy, Macro & Market Cycles

Rupee Depreciation

A fall in the rupee's value against another currency, so more rupees are needed to buy the same foreign amount.

Depreciation % = (New Rate - Old Rate) / Old Rate x 100, quoted as rupees per unit of foreign currency %