A measure of investment performance that accounts for the amount of risk taken to achieve returns. Common metrics include the Sharpe Ratio, Sortino Ratio, and Calmar Ratio. A higher risk-adjusted return indicates better compensation per unit of risk assumed.
Example
“Strategy A returned 20% with 30% volatility while Strategy B returned 15% with 10% volatility. Despite lower raw returns, Strategy B has a superior risk-adjusted return because it achieved strong gains with much less risk.”