Risk-adjusted return

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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 ?
These awards are a recognition of Fidelity's focus on delivering consistent performance and risk-adjusted returns based on our investment philosophy of bottom-up stock picking.
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 mandate is to preserve capital and achieve attractive 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.
To optimize risk-adjusted performance, executives are turning to holistic, enterprisewide risk measurements across all lines of business and risk elements, economic determinations of capital needs, earnings-at-risk and embedded-value-at-risk, as well as risk-adjusted returns on capital.
HRC's objective is to create and manage a diversified portfolio of loans and real estate, with a long-range goal of generating high, risk-adjusted returns for its investors.
They can be based on income levels, operating returns, risk-adjusted returns or shareholder value.
CABR is a proven partner for AEW and we intend to capitalize on their extensive market knowledge, sourcing and management capabilities in order to achieve high risk-adjusted returns for our clients," said Marc Davidson, portfolio manager for the AEW Partners Funds, a series of opportunistic real estate funds managed by AEW.

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