Risk-Adjusted Return
Risk-adjusted return is a performance metric that expresses investment returns in relation to the amount of risk taken. It enables comparisons across assets or portfolios by accounting for volatility and, in some metrics, downside risk.
Example: Example: Fund A returns 8% with 12% annualized volatility, and Fund B returns 9% with 15% volatility. With a 2% risk-free rate, Fund A's Sharpe ratio is (0.08-0.02)/0.12 ≈ 0.50, while Fund B's is (0.09-0.02)/0.15 ≈ 0.47.
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