Risk-Adjusted Return

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure ...
  2. William F. Sharpe

    An American economist who won the 1990 Nobel Prize in Economics, ...
  3. Terminal Capitalization Rate

    A rate used to estimate the resale value of a property at the ...
  4. Modified Sharpe Ratio

    A ratio used to calculate the risk-adjusted performance of an ...
  5. Return

    The gain or loss of a security in a particular period. The return ...
  6. Risk-Free Rate Of Return

    The theoretical rate of return of an investment with zero risk. ...
Related Articles
  1. A Career In Real Estate Portfolio Management
    Personal Finance

    A Career In Real Estate Portfolio Management

  2. Determining Risk And The Risk Pyramid
    Investing Basics

    Determining Risk And The Risk Pyramid

  3. 5 Ways To Measure Mutual Fund Risk
    Mutual Funds & ETFs

    5 Ways To Measure Mutual Fund Risk

  4. Understanding Volatility Measurements ...
    Mutual Funds & ETFs

    Understanding Volatility Measurements ...

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center