Risk-adjusted return

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. This gives an abnormal rate of return that shows how the asset performed over and above a benchmark asset with the same risk. We can also use the beta of the asset multiplied by the benchmark return to create a hypothetical asset that has the same risk characteristics. The difference between the asset return and the beta times the benchmark is the risk adjusted return and is also known as the alpha.

Risk-Adjusted Return

The return on an asset or investment relative to the return on assets and investments with similar risk. The risk-adjusted return can help an investor determine whether he/she is extracting the highest possible return for the least possible risk. One way to calculate the risk-adjusted return is to take the Sharpe ratio.
References in periodicals archive ?
Morningstar Risk-Adjusted Return (MRAR): Adjust Morningstar Return for risk to get Morning Star Risk-Adjusted Return.
The award highlights the outstanding risk-adjusted returns delivered by the TCW Total Return Bond Fund (NASDAQ:TGLMX) since its inception in 1993.
But even large insurers will probably focus on those product lines offering the most certain risk-adjusted return on capital.
The company offers the application within the property/casualty industry of enterprise-risk modeling using risk-adjusted return on capital methodologies.
mid caps delivered superior absolute and risk-adjusted returns compared to stocks in other market capitalization ranges," Dunkerley said.
For each fund with at least a three-year history, Morningstar calculates a Morningstar rating based upon a Morningstar risk-adjusted return measure that accounts for variations in a fund's monthly performance including the effects of sales charges, loads, and redemption fees.
Real estate has historically proven to be an attractive addition to stock and bond portfolios due to low correlations and competitive risk-adjusted returns.
The winner of each quarterly Challenge, based on risk-adjusted return, will be awarded the opportunity to trade a $250,000 managed account for PFG.
For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating(TM) (based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's monthly performance, including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance.
Muhammad Al Jasser, Governor of the Saudi Arabian Monetary Agency (SAMA), said Saudi Arabia has managed assets as reserves and not as sovereign wealth funds, and are focusing on safety, liquidity and risk-adjusted returns.
Enforcing risk limits that are not modified by return expectations could lead to sub-optimal performance as the company rejects risks that exceed absolute limits even though they are priced to provide adequate risk-adjusted returns.
The truly irreplaceable location of the 1880 Broadway Retail Condominium, strong sponsorship and exceptional risk-adjusted returns made this a highly sought after investment in both the debt and equity markets," adds Steve Kohn, president of Sonnenblick-Goldman.

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