DEFINITION of 'RiskAdjusted 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. Riskadjusted returns are applied to individual securities and investment funds and portfolios.
INVESTOPEDIA EXPLAINS 'RiskAdjusted Return'
There are five principal risk measures: alpha, beta, rsquared, 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

Sharpe Ratio
A ratio developed by Nobel laureate William F. Sharpe to measure ... 
William F. Sharpe
An American economist who won the 1990 Nobel Prize in Economics, ... 
Terminal Capitalization Rate
A rate used to estimate the resale value of a property at the ... 
Modified Sharpe Ratio
A ratio used to calculate the riskadjusted performance of an ... 
RiskFree Rate Of Return
The theoretical rate of return of an investment with zero risk. ... 
Return
The gain or loss of a security in a particular period. The return ...
RELATED FAQS

What is a good Sharpe ratio?
The Sharpe ratio is a wellknown and wellreputed measure of riskadjusted return on investment, developed by William Sharpe. ... Read Full Answer >>
Related Articles

Personal Finance
A Career In Real Estate Portfolio Management
Find out why this job more closely resembles the role of a CEO than an asset manager. 
Investing Basics
Determining Risk And The Risk Pyramid
Many investors do not understand how to determine the risk level their individual portfolios should bear. 
Mutual Funds & ETFs
5 Ways To Measure Mutual Fund Risk
These statistical measurements highlight how to mitigate risk and increase rewards. 
Mutual Funds & ETFs
Understanding Volatility Measurements
How do you choose a fund with an optimal riskreward combination? We teach you about standard deviation, beta and more! 
Active Trading
When Geographic Diversification Fails
Geographic diversification is becoming an ineffective investing strategy, but there are others that pay off in the long term. 
Mutual Funds & ETFs
FloatingRate Mutual Funds: Rewards And Risks
In an economy with low interest rates, investors need to get creative in order to reap high returns. 
Options & Futures
Calculating The Equity Risk Premium
See the model in action with real data and evaluate whether its assumptions are valid. 
Fundamental Analysis
The EquityRisk Premium: More Risk For Higher Returns
Learn how the expected extra return on stocks is measured and why academic studies usually estimate a low premium. 
Investing
How Swaptions Can Reduce Risk in Portfolios
How can investing in Swaptions reduce risk in portfolios. 
Investing Basics
Understanding Risk Averse Investing
Risk averse describes a low level of risk an investor is willing to accept on his investments. An investor who is risk averse prefers little risk and is willing to accept a lower return because ...