What does 'Expected Return' refer to in investment analysis?

'Expected Return' refers to the return anticipated on an investment over time. This concept takes into account the potential future performance of an investment based on various factors, including historical data, market conditions, and economic indicators. It is an essential metric in investment analysis as it helps investors gauge the potential profitability of an asset by projecting its future returns rather than solely relying on past performance.

This anticipated return often incorporates different scenarios, factoring in the probability of various outcomes, such as market fluctuations or changes in economic conditions. Understanding expected return aids investors in making informed decisions by comparing the anticipated profitability of different investment opportunities and aligning them with their risk tolerance and investment goals.