Define: Risk Adjusted Return

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Definition: Risk Adjusted Return



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Full Definition of Risk Adjusted Return


The risk-adjusted return of an asset or a portfolio is the return it provides adjusted for how risky it is. An asset with a superior risk-adjusted return is one that has the highest return for a given level of risk. Risk-adjusted return enables investors to compare the performance of low risk, low return investments to high risk, high return investments.

Risk-adjusted return is calculated using the Sharpe ratio, a volatility-adjusted measure of return.

To calculate the risk-adjusted return, subtract the risk-free rate from the investment’s return, then divide the resulting number by the standard deviation of the investment’s return. The value of a risk-adjusted return lies in its ability to reveal whether an investment’s returns are attributable to smart investing or excessive risk-taking. Risk-adjusted return is a useful tool for factoring volatility into investment decisions.


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Definition Sources


Definitions for Risk Adjusted Return are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 6th February, 2020