Risk-Adjusted Return

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What is a 'Risk-Adjusted Return'

A concept that refines an investment's return by measuring how much risk is involved in producing that return, which is generally expressed as a number or rating. Risk-adjusted returns are applied to individual securities and investment funds and portfolios.

BREAKING DOWN 'Risk-Adjusted Return'

There are five principal risk measures: alpha, beta, r-squared, standard deviation and the Sharpe ratio. Each risk measure is unique in how it measures risk. When comparing two or more potential investments, an investor should always compare the same risk measures to each different investment in order to get a relative performance perspective.

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RELATED FAQS
  1. What is the difference between the Sharpe ratio and alpha?

    Use alpha and the Sharpe ratio to evaluate mutual funds by comparing their risk-adjusted returns. Learn what modern portfolio ... Read Answer >>
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    The correct answer is a): The risk-adjusted return attempts to measure the risks taken to achieve a desired return. Alpha ... Read Answer >>
  3. What is the difference between a sharpe ratio and an information ratio?

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  4. What metrics should I use to evaluate the risk return tradeoff for a mutual fund?

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  5. What are the advantages and disadvantages of zero-based budgeting in accounting?

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