Risk-Adjusted Returns

Risk-adjusted returns measure how much profit an investment earns relative to the risk taken to achieve that profit. Instead of just looking at the total returns, this approach considers potential losses and the volatility of the investment. Essentially, it helps investors compare different options by showing which ones provide the best returns for the amount of risk involved. This way, investors can make more informed decisions, balancing the desire for high returns with the understanding that higher rewards often come with increased risk.