Financial Case
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if we want to do some investments, we must considered about risk and return.
Higher risk will be effected to higher return. Sometimes we can minimize the risk and get the higher return with portfolio/diversification. In this condition, analyst always do fundamental and technical analysis for valuation some investments. If we expected higher, but valuation is wrong than we get some results wrong too. In that case, we can do same perception and make some valuation so we can considered all factors and the valuation is right so we not get te wrong results.
Well, for counting the risk, we can use Sharpe-Treynor or Alpha Index. Three kind of index always use for risk some investments. If we want to counting the return, we can use CAPM. But, if want accurate, we can use Fama and French Model.
For minimize risk, we can portfolio that. For a second, we can choose with efficient frontier. But it depends the investors behavior. If they risk averse, they will choose the safety investments. But, if they risk neutral, they will choose depends of tem. On the other hand, if they risk seeker, they will choose the risky zone.
Once more time, we can considered with another finance theory. Maybe M&M Theory, or Pecking Order Theory, or another relevance theory.
As human, we want get a lot of return with the smaller risk. But, it cant happen like that because the environment always change-not consistent. Have some exposure-factor-or maybe market form with some information that effect the perception.