Business and Personal Finance Dictionary

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• RISK-ADJUSTED PERFORMANCE
  
  When you evaluate an investment's risk-adjusted performance, you aren't looking simply at its straight performance figures but at those figures in relation to how much risk you'd be taking to get the potential return the investment could produce. You might compensate for risk by creating a balanced portfolio in which you combined risky and less risky investments. But you might also want to look at the risk posed by various investments individually. One method is to investigate the investment's price volatility over various periods of time, including different market environments. For example, you might consider how far the price fell in the most recent bear market against its price in a bull market, or how it performed in a recent market correction. In general, the greater the volatility, the greater the risk. However, many analysts believe that looking exclusively at past performance can be deceptive in evaluating the risk you are taking in making a certain investment, since it can't predict what will happen in the future.
  
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