when an investor considers high risk high return investments the investor can apply risk return tradeoff to the vehicle on a singular basis as well as within the context of the portfolio as a whole examples of high risk high return investments include options penny stocks and leveraged exchange traded funds etfs generally speaking a diversified portfolio reduces the risks presented by individual investment positions for example a penny stock position may have a high risk on a singular basis but if it is the only position of its kind in a larger portfolio then the risk incurred by holding the stock is minimal 
risk return tradeoff also exists at the portfolio level for example a portfolio composed of all equities presents both higher risk and higher potential returns within an all equity portfolio risk and reward can be increased by concentrating investments in specific sectors or by taking on single positions that represent a large percentage of holdings for investors assessing the cumulative risk return tradeoff of all positions can provide insight on whether a portfolio assumes enough risk to achieve long term return objectives or if the risk levels are too high with the existing mix of holdings calculating risk return