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 Return on Capital (RAROC)
Another measure of risk-adjusted profitability, derived as the ratio between P/L and value at risk.
Risk-Adjusted Return - The return on an asset or a portfolio, adjusted for volatility; typically represented by the Sharpe Ratio.
Risk-adjusted return
A measure of how much risk a portfolio has employed to earn its returns.
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Risk-adjusted returns Projected return from a portfolio when accounting for the combined risk and the return potential of all the investments in the portfolio.
Risk-adjusted return
Often we subtract from the rate of return on an asset a rate of return from another asset that has similar risk.
Alpha measures risk-adjusted return, or the actual return an equity security provides in relation to the return you would expect based on its beta. Beta measures the security's volatility in relation to its benchmark index.
Morningstar Ratings are based on risk-adjusted return. The Overall Morningstar Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics.
A measure of a fund's risk-adjusted return. Alpha can be used to directly measure the value added or subtracted by a fund's manager.
The Upside-Potential Ratio is a measure of risk-adjusted returns. All such measures are dependent on some measure of risk. In practice, standard deviation is often used, perhaps because it is mathematically easy to manipulate.
In risk-adjusted returns, the argument loses some of its credibility. Buy and hold may take the guesswork out of beating the market, but it does little to compensate for the risk associated with a continuous investment in the market.
The measure of a fund's risk-adjusted return. Alpha is derived by compares the fund's actual returns and the expected returns as determined by its level of risk (beta).
All of this is important, but perhaps a more interesting analysis for investors to consider involves quality-of-return concepts often referred to as risk-adjusted returns.
For all implementing views on growth, inflation or Fed expectations, five instruments proved to be generating the highest risk-adjusted returns:
Eurodollar futures
Two-year U.S. Treasury Notes
5s/30s curve
Swap spreads
Commodity futures ...
Sharpe, and used by investors to compare the performance of two portfolios in terms of risk-adjusted return. Calculated by subtracting Risk free rate from Total portfolio return, and then dividing by the standard deviation of the portfolio.
P/E effect
That portfolios with low P/E stocks exhibit higher average risk-adjusted returns than those with high P/E stocks. Related: Value manager.
In a situation in which both stocks and bonds are undervalued, you may need to make some sort of comparison of expected risk-adjusted returns to set your 'tilt' (overweighting), but that is clearly not the case here.
Five-star funds are considered to be those that generate superior risk-adjusted returns. Studies have shown that gaining a five-star ranking leads to more people investing in the fund, so mutual funds try to improve their rankings.
Crucial is whether the risk-adjusted return increases with the help of options. To answer this question we calculated the Sharpe ratio for the holding stocks of the NASDAQ-100 and holding a call or put on the stocks of the NASDAQ-100: ...
com's research suggests that by constructing diversified mutual fund portfolios using sector funds, investors have the potential to outperform the market averages on the basis of relative returns as well as risk-adjusted returns.
The theoretical return is predicted by a market model, most commonly the Capital Asset Pricing Model (CAPM) model. The market model uses statistical methods to predict the appropriate risk-adjusted return of an asset.
In 2002, Morningstar enhanced their mutual fund rating system by introducing several new peer groups, and changing their measure of risk-adjusted return. The two major components of this new rating system include: ...
Instead, the investor should compare the earnings yield, the expected growth rate, and current tax law, to all of the other opportunities available to them, allocating their resources to the one that offers the best, risk-adjusted returns.
Thus, if an investment portfolio's M-squared is greater (less) than the return on the benchmark portfolio, then the investment portfolio's risk-adjusted return is better (worse) than that of the benchmark.
 See also: Return, Risk, Investment, Stock, Market
  
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