Risk-Adjusted Return
InvestingGlossary term
Definition
A measure of investment performance that accounts for the amount of risk taken to achieve returns. The Sharpe ratio is the most common metric, comparing excess returns to volatility. Higher risk-adjusted returns indicate more efficient investing.
Related terms
- Sharpe RatioA measure of risk-adjusted return, calculated as excess return divided by standard deviation. Higher Sharpe ratios indicate better returns relative to risk taken.
- AlphaA measure of an investment's performance compared to a benchmark index. Positive alpha indicates outperformance, negative alpha indicates underperformance. Represents the value added by active management.
- BetaA measure of a stock's volatility relative to the overall market. A beta of 1 means the stock moves with the market, above 1 means more volatile, below 1 means less volatile.
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