Risk adjusted return on capital (RAROC) is a risk-based profitability measurement framework for analysing risk-adjusted financial performance and providing a consistent view of profitability across businesses.
Risk adjusted return on capital, or RAROC, is one of the most commonly used risk vs. reward evaluation tools in the investment world.
Risk Adjusted Return on Capital (RAROC) Economic approach that includes a series of complex calculations that is used to measure returns based on the risk-adjusted capital of a financial institution.
:: Risk Adjusted Return
Knowing the standard deviation of a service's returns allows us to "adjust" them to take into account their volatility. This, in effect, becomes a risk-adjusted rate of return. The formulae for this is:
...
Abkürzung für Risk Adjusted Return On Capital. Verhältniskennzahl zur Messung des Risiko-/Rendite-Verhältnisses eines Bankgeschäfts.
Hedge funds are suitable for those very high risk adjusted returns. Generally, hedge fund managers concentrate on a very narrow field, mainly trading in a small number of securities in a given market.
Value Added
Value added is the risk adjusted return generated by an investment strategy: the return of the investment strategy minus the return of the benchmark.
R.I.S.E. also conducts a student portfolio competition that is generally based on the risk adjusted return of a portfolio, or the portfolio's net gain minus the estimated risk involved with its investments.
If an asset's return is even higher than the risk adjusted return, that asset is said to have "positive alpha" or "abnormal returns". Investors are constantly seeking investments that have higher alpha.
Not only are the actual returns important, the level of risk involved in generating the return is also important, and therefore there are also risk adjusted returns. Mutual fund risks are assessed using five different pointers.
risk adjusted return A measure of how much an investment returned in relation to the amount of risk it took on. risk arbitrage The use of an arbitrage, usually associated with risk.
 See also: Investment, Return, Risk, Stock, Market
|
