Which statement best characterizes upside-only risk compared with two-sided risk?

• A. Upside-only yields savings if performance is good; two-sided risk also requires bearing losses when performance is poor.
• B. Upside-only yields losses; two-sided risk yields savings.
• C. Both carry equal risk and reward; no distinction.
• D. Two-sided risk eliminates losses.

Answer: (C)

Upside-only risk focuses on participating in positive outcomes while limiting or eliminating downside exposure. In contrast, two-sided risk involves exposure to both directions: you can gain if performance is strong, but you can also incur losses if performance deteriorates. Because of that, they are not the same in how risk and reward are distributed. Saying they carry equal risk and reward ignores the asymmetry of upside-only arrangements, which tend to lock in gains on good performance but not accept losses on bad performance, whereas two-sided risk creates potential for losses alongside gains. In short, upside-only and two-sided risk differ in how much downside you face, and the two-sided setup can erode savings or produce losses when performance is poor.