MANAGEMENT

Detailed explanation-1: -There are several methods of risk-adjusting performance, such as the Sharpe ratio and Treynor ratio, with each yielding a slightly different result. In any case, the purpose of risk-adjusted return is to help investors determine whether the risk taken was worth the expected reward.

Detailed explanation-2: -A RAROC calculation takes into account the riskiness of the portfolio or instrument when calculating profitability-making it preferable when comparing products and portfolios of different sizes and making decisions such as which products to promote and how to price new business.

Detailed explanation-3: -If we speak of risk-adjusted returns, there are five measures that can be used-Alpha, Beta, R-squared, Standard Deviation and Sharpe Ratio. All of these measures give specific information to investors about risk-adjusted returns.

Detailed explanation-4: -What are “Risk Adjusted Measures?” There are four key risk adjusted performance measures – Alpha, Sharpe Ratio, Treynor Ratio, and Information Ratio. It is very important to factor in risk while evaluating a portfolio’s performance.

Detailed explanation-5: -Risk-adjusted return on capital (RAROC) is a risk-adjusted measure of the return on investment. It does this by accounting for any expected losses and income generated by capital, with the assumption that riskier projects should be accompanied by higher expected returns.