Risk-adjusted return


Also found in: Acronyms.

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 ?
"Providing our clients with insider-level access to secure commercial investments that offer superior risk-adjusted returns and growth potential is the primary purpose in building this fund."
Morningstar found that during the subsequent 36 months, the most expensive equity fund in could lose out on 3% of risk-adjusted return while fixed income funds would forfeit 0.57% on average.
offers opportunities for value creation, healthy cash flows and favorable risk-adjusted returns. The level of Canadian investment is highly correlated with the health of the American economy and exchange rates, but the overriding motivation is that Canadian institutional investors need to look beyond their borders to find product and achieve greater diversification."
There are three steps involved in calculating the Morningstar Risk-Adjusted Return (MRAR).
As [[alpha].sub.i] is the risk-adjusted return for stock i, the CAPM implies that no asset can generate returns above its exposure to market risk.
Corporate debt is the safest in terms of risk-adjusted return. High yield emerging market corporate credit is also equally important component of an ideal portfolio in the current economic environment."
[Hypothesis.sub.2]: The average monthly risk-adjusted return per quarter for a passive midsize capitalization fund is different from that of an active midsize capitalization fund.
Only 3 bond funds were able to successfully beat the risk-adjusted returns of the HSBC index, and these were Coconut Fixed Income Fund, Philippine Stock Peso Bond Fund, and Pacific Ocean Fixed Income Fund with Sharpe ratios of 5.25, 2.12, and 2.01 respectively, higher than the total risk-adjusted return of the HSBC benchmark of 1.59.
"If the risk-adjusted return is high, pursue for it's (sic) own sake...if risk-adjusted return [is] limited or zero, then hedge to reduce risk," the report asserts.
The results show that funds' risk-adjusted returns are not significantly related to fund age and initial service charge and that riskier funds are able to generate higher returns which commensurate with their risk levels.
A good board selects out-standing management--who deliver more than satisfactory risk-adjusted returns in a transparent and understandable way while operating the business in an ethical and legal manner.
When after-tax returns are considered, certain asset classes that would otherwise be expected to provide a favorable risk-adJusted return effect on a portfolio actually become an inferior choice, because their after-tax return is insufficient to justify the risk.

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