Risk-Adjusted Return Calculator

Formula

To calculate the risk-adjusted return:

\[ RAR = \frac{IR - RFR}{STD} \]

Where:

\(RAR\) is the Risk-Adjusted Return
\(IR\) is the Investment Return (%)
\(RFR\) is the Risk-Free Rate (%)
\(STD\) is the Standard Deviation

What is Risk-Adjusted Return?

A risk-adjusted return is a measure of the return of an investment relative to a “risk-free” investment, such as a bond, with respect to the investment's standard deviation. It allows investors to compare the performance of different investments while taking their risk into account.

Example Calculation 1

Let's assume the following values:

Investment Return (\(IR\)) = 8%
Risk-Free Rate (\(RFR\)) = 2%
Standard Deviation (\(STD\)) = 5

Using the formula:

\[ RAR = \frac{8 - 2}{5} = 1.2 \]

The Risk-Adjusted Return is 1.2.

Example Calculation 2

Let's assume the following values:

Investment Return (\(IR\)) = 10%
Risk-Free Rate (\(RFR\)) = 3%
Standard Deviation (\(STD\)) = 4

Using the formula:

\[ RAR = \frac{10 - 3}{4} = 1.75 \]

The Risk-Adjusted Return is 1.75.