"The Relationship between Risk and Return is Conditional upon the Sign of the Excess Market ReturnIntroductionCommonly, Investor makes an investment in the expectation of earnings of some return in future.But it is noted that future is thoroughly uncertain. Thus, in this uncertainty associated with thereturns from investment, it introduces risk for the investor.Expected return is what an investor assumes to get from his investment and it’suncertain.Realized yield is what an investor actually acquires from his investment at the end ofinvestment period.The possible variation between of the actual return from the expected return is termed as arisk.Thus, the risk arises from the variability of returns.It is caused by various numbers of factors. Such asA. Systematic riskThe Risk which is occurs in the change of economic, political and social system continuously.These changes have influence over on performance of companies and thereby on their stockprices in fluctuating degrees.For Example, when the economy moves into recession, profits willshift downwards and share prices of companies may decline.Types of Systematic risk? Interest rate riskThe Changes due to inconsistency in interest rates from time to time and effects on debtsecurities like debentures, bonds as they carry fixed coupon rates.4 The Relationship between Risk and Return is Conditional upon the Sign of the Excess Market Return? Purchasing Power riskIt is seemed like as an inflation risk, as indicated that inflation moves the purchasing powerunfavorably. It is more inflationary circumstancesparticularly in respect of bonds and fixedincome securities.it is not obligatory to invest in such securities during inflationary periods. ? Market RiskIt is anorderly risk that affects the price of any definite share moves upward or downwardsteadily for some time periods in line with other shares in the stock exchange. Hence, Rise inprice of shares is called a bullish trend whereas falling in prices of shares is called a Bearishtrend.B. Unsystematic RiskIt arises due to certain causes of the company.it is also known as Micro in nature.it is alsothe addition to affecting of variation the price of shares.Types of Unsystematic risk? Business riskIt is emerging from sale and purchase of securities affected by business cycles,technology changes etc. ? Financial RiskIt arises due to changes in the capital structure of the company.it is expressed in debtequity ratio. Excess of debt against the equity in the capital structure indicates that thecompany is highly geared.5 The Relationship between Risk and Return is Conditional upon the Sign of the Excess Market ReturnHence, smart investor expecting the generous the extent of risk associated with differentinvestment proposals.The standard deviation or variance provides a degree of total risk linkedwith the security. The Unsystematic risk associated with security of company can be eliminatedor reduced by combining it another security having a negative correlation. The risk that isrelevant to investment decision is the systematic risk because it is not diversifiable. Hence, thekey concern of investor lies in the measurement of systematic risk of security. Now, systematic risk of a security is calculated by anarithmeticaldegree which is called Beta.The foremost input data essential for the calculation of beta of any security are the historic dataof returns of the individual security and following return of anillustrative market return (stockmarket index). Regression Method: It iscreated by the statement that there is exists a linear relationshipconcerning a dependent and independent variable. It helps to compute the values of two constants, specifically alfa (a) and beta (ß). ßrelations withchange in the dependent variable in response to the unit change in the independent variable,while a procedures the value of the dependent variable.Positive Beta- indicates that security’s return is dependent on the market yield and transfers inthe direction in which market moves. Negative Beta- specifies that security’s return is dependent on the market yield but interchangesin the opposite direction in which market moves. Zero Beta- shows that security’s return is independent of the market yield.6 "