Explanation

The Coefficient of Variation (CV) is the correct answer because it measures risk per unit of mean return.

Key Concepts:

1. Coefficient of Variation (CV):

   • Formula: CV = Standard Deviation / Mean Return
   • Measures risk (standard deviation) relative to the mean return
   • Lower CV indicates better risk-adjusted return
   • Expresses risk per unit of return

2. Sharpe Ratio:

   • Formula: (Portfolio Return - Risk-Free Rate) / Standard Deviation
   • Measures excess return per unit of risk
   • Uses risk-free rate as benchmark
   • Not exactly "risk per unit of mean return" but "excess return per unit of risk"

3. Standard Deviation:

   • Measures total risk or volatility
   • Does not consider return at all
   • Only measures dispersion of returns

Why Coefficient of Variation is Best:

• The question specifically asks for "risk per unit of mean return"
• CV directly calculates standard deviation divided by mean return
• It normalizes risk by the average return level
• Allows comparison of risk-adjusted performance across different return levels

Example:

If Portfolio A has mean return of 10% and standard deviation of 15%: CV = 15%/10% = 1.5

If Portfolio B has mean return of 8% and standard deviation of 12%: CV = 12%/8% = 1.5

Both have the same risk per unit of return despite different absolute risk levels.

Answer: C - Coefficient of variation