[MUSIC] So, welcome again. So, what we'll do now is, as in the second session of those basic concepts in finance, we'll look at real data. Because it's good, of course, to look at illustrative example just for pedagogical purposes. But is even more important to look at real data. So, let us be a little bit more wide and let us go to the USA and Brazil. >> Yeah, so what we learned from a previous presentation of Olivier is that we should not only look at higher average return. But we should also consider how spread out the data. That does tell us something about the risk of the investment. So now, if you look at the US, the average return over the last 40 months was about 1%. But it was three times higher in Brazil, at 3%. If we look at the risk now, you see that US had a volatility or risk of only 2%. And Brazil was 6 times riskier, at 12%. So, if now I look at these numbers, I have a higher return in Brazil, but also higher risk, and actually more risk than return. So, let's look at how I make this tradeoff between risk and return. So, if I take the ratio of return to risk, I see that I end up with a higher return risk ratio. Which is about 50% in US, compared to only 25% in Brazil. >> So, thank you very much, Ines, for this first example. So now, let us look at the second example and we'll look at Canada and India. >> So, another case of developing versus emerging. So, Canada now has a return on average return, again over last 14 months, about 2%. Slightly higher actually in India, in India the average return was 3%. And based on on this data, it tuns out that in terms of risk the two markets have the same risk, about 7%. But if I look at the return risk ratio, which is obvious here. Because I have higher returns like the higher return in India. It turns out that India based on this return risk ratio and this data is a better investment. >> Okay, so thank you, thank you very much for this very interesting second example. So now, we look at the third example and we'll go to South Korea and Egypt. >> So now, we have one of the largest emerging markets, South Korea and one that is still emerging, Egypt. And we want to see how the returns and risks compare in these two markets. So, we see that the average return over the last 14 months was about 1% in South Korea It was twice as high in Egypt, so it was at2%. While the risk, it was at 5% in South Korea, and again, it was twice in Egypt. So, we have twice as much return as in South Korea but also twice the risk of South Korea. So, in terms of return risk ratio, we end up with the same number. So, for South Korea that's one divided by five, that's the 20%. And for Egypt, that's two divided by ten, again 20%. So you have the same return risk ratio, which one you should go for? Here, we are considering this return risk ratio, but actually, you know we are different. So, some investors would put more weight into higher return and some others would put more weight into lower risk. So, it really depends on your preferences and the way we capture this in economics, is this concept of utility. Okay? So, the other thing, also we should watch is that we're only looking at the mean and the volatility. But it's also important to look at other characteristics of the data, and that's what we're going to learn next with Olivier. >> Yes indeed, so this is really what we will see in the next video. So, just to summarize what we saw in this full session. In fact, it's very easy, you have very easy tool to use in order to look at reward and risk. Because you just need to compute an average of volatility. And then by looking at the ratio, it means that you can select a good investment. [MUSIC]