Risk-adjusted returns are a way of calculating the returns that you get as opposed to the risk that you take.
In finance, it is widely discussed that equity investing is more risky than investing in FD. It is also recognised that equities have achieved better returns than FD historically.
But if we calculate returns on the basis of a potential risk, which is more profitable? This teaches us a lot more about investments that are good and poor.
There are also investments that offer marginally higher returns while increasing the risk to a much greater extent.
In such conditions, risk-adjusted returns allow investors to determine how much to invest (or not invest).
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