Same allocation but different risk factor

Lots of people say that 50% in stocks and 50% in bond or secure investment. Where that told us that our risk in 50-50. But in reality in not that. Risk level in different for both of these investment.

Let assume a scale that rate 0 to 10. Where 10 is high risk index and 0 is low risk index.

Now according to my formula

Here for stocks assume that risk scale rate is 8 and for bond is 2 only. Then from our formula we get

Then our ration of rick become 20% in risk invest in stocks and 80% in the secure investment like bond.

Take another example 70% in stocks and 30% in bond. Let risk scale ration of stocks is 8 and bond in 2 . then from our calculation we get

So here we find that in our calculation 63.16 % in the risk investment and 36.84% in the secure investment. Both have different allocation in terms of money that is 70-30 but in risk factor that is 63.16-36.84

Comments

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