Financial Terms / risk adjusted return

Risk-adjusted return is a measurement of a potential investment's potential profit taking into account its associated risk. It is used to evaluate individual stocks, investment funds, and entire portfolios.

## Formula

``RAR = Total Return of Investment/Total Risk``

## How do I calculate the risk adjusted return?

`Risk-adjusted return is an important metric to consider when evaluating investment opportunities. It measures the return of an investment relative to the risk taken on to achieve that return. To calculate the Risk-adjusted return, `divide the total return of the investment by the total risk taken on to achieve that return.` This can be expressed as a ratio, for example, Total Return/Total Risk. To make this calculation, the returns and risks should be measured over the same period of time. Risk-adjusted return can be calculated using Sourcetable.`

`Risk-adjusted return is a calculation of the profit or potential profit from an investment that takes into account the risk associated with that investment.`

## What does it mean to adjust for risk?

`Adjusting for risk means taking into account any potential losses that could occur due to the investment and using that information to calculate the expected return from the investment.`

## How do you calculate Risk-adjusted return?

`Risk-adjusted return is calculated by taking the expected return from an investment and subtracting the risk associated with the investment. The formula can be expressed as: `Risk-adjusted return = Expected return â€“ Risk`.`

## Key Points

How do I calculate risk adjusted return?
`RAR = Total Return of Investment/Total Risk`