Risk-Adjusted Return


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.


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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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  1. How can I use expected return with my risk profile to make an investment decision?

    Investors use expected return to evaluate the potential gain or loss resulting from investing capital in a particular security ... Read Full Answer >>
  2. What is a good Sharpe ratio?

    The Sharpe ratio is a well-known and well-reputed measure of risk-adjusted return on investment, developed by William Sharpe. ... Read Full Answer >>
  3. Can mutual funds only hold stocks?

    There are some types of mutual funds, called stock funds or equity funds, which hold only stocks. However, there are a number ... Read Full Answer >>
  4. How do mutual funds compound interest?

    The magic of compound interest can be summed up as the concept of interest making interest. On the other hand, simple interest ... Read Full Answer >>
  5. Do mutual funds pay interest?

    Some mutual funds pay interest, though it depends on the types of assets held in the funds' portfolios. Specifically, bond ... Read Full Answer >>
  6. Why have mutual funds become so popular?

    Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>

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