Risk-Adjusted Return

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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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RELATED FAQS
  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 >>
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    The Sharpe ratio is a well-known and well-reputed measure of risk-adjusted return on investment, developed by William Sharpe. ... Read Full Answer >>
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