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Finance Dictionary and Glossary of Investment Terms
Risk-adjusted return
Definition 1.
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 against the benchmark to calculate an alpha, which is also risk-adjusted performance.
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Definition 2.
Return earned on an asset normalized for the amount of risk associated with that asset.
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