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Some investors and financial analysts try to estimate the risk an investment poses by speculating on how much the investment is likely to increase in value as opposed to how much it could decline.
For example, a stock priced at $50 that analysts think could increase to $90 or decrease to $30 has a 4:2 risk ratio, because they estimate the stock could go up $40 but down $20.
Critics point out that it is impossible to provide an accurate estimate of future prices, rendering risk ratios meaningless.Yahoo Finance - Cite This Source - This Definition
- Browse Related Terms: Alpha, Book value, Dividend yield, Earnings estimate, Earnings momentum, Earnings surprise, Forward price-to-earnings ratio, Multiple, Outstanding shares, Price-to-book ratio, Price-to-earnings ratio (P/E), Price-to-sales ratio, Quarter, risk ratio, Special situation, Undervaluation, valuation, Value stock, Whisper number, Zacks Investment Research
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