<h2>Return on Risk-Adjusted Capital (RORAC)</h2>
<p>Return on Risk-Adjusted Capital (RORAC) is a performance metric that measures the return an investment generates relative to the risk it undertakes. It helps investors and traders evaluate the efficiency of an investment or trading strategy by considering both profits and the risk involved.</p>

<h2>How It Works</h2>
<p>RORAC is calculated using the following formula:</p>
<table>
<tbody>
<tr>
<td><strong>RORAC</strong></td>
<td>=</td>
<td><strong>Return</strong></td>
<td>−</td>
<td><strong>Risk-Free Rate</strong></td>
<td>∕</td>
<td><strong>Risk Measure</strong></td>
</tr>
</tbody>
</table>
<p>Where:</p>
<ul>
<li><strong>Return</strong> is the profit generated by the investment or trading strategy.</li>
<li><strong>Risk-Free Rate</strong> is the return on an investment with virtually no risk, often represented by government bonds.</li>
<li><strong>Risk Measure</strong> is a metric that quantifies the risk of the investment or trading strategy. Common risk measures include volatility (standard deviation), value at risk (VaR), and beta.</li>
</ul>
<p>RORAC can be expressed as a percentage or a ratio. A higher RORAC indicates a more efficient use of capital, as it shows that the investment or trading strategy generates more return for each unit of risk taken.</p>

<h2>Why It Matters for Traders</h2>
<p>RORAC is an essential tool for traders to:</p>
<ul>
<li>Compare the performance of different trading strategies or investments.</li>
<li>Evaluate the risk-reward ratio of potential trades.</li>
<li>Identify and avoid high-risk, low-return investments.</li>
<li>Optimize their portfolio by allocating capital to investments with the highest RORAC.</li>
</ul>
<p>Traders using <strong>MetaTrader 5</strong> can calculate RORAC manually or use custom indicators and Expert Advisors to automate the process.</p>

<h2>Example</h2>
<p>Consider two trading strategies, A and B, with the following performance metrics:</p>
<table>
<tbody>
<tr>
<th>Strategy</th>
<th>Return</th>
<th>Volatility (Risk Measure)</th>
</tr>
<tr>
<td>A</td>
<td>15%</td>
<td>10%</td>
</tr>
<tr>
<td>B</td>
<td>20%</td>
<td>15%</td>
</tr>
</tbody>
</table>
<p>Assuming a risk-free rate of 2%, the RORAC for each strategy would be:</p>
<table>
<tbody>
<tr>
<td>Strategy A</td>
<td>=</td>
<td>15% − 2% ∕ 10%</td>
<td>=</td>
<td>1.3</td>
</tr>
<tr>
<td>Strategy B</td>
<td>=</td>
<td>20% − 2% ∕ 15%</td>
<td>=</td>
<td>1.2</td>
</tr>
</tbody>
</table>
<p>In this case, Strategy A has a higher RORAC, indicating that it generates more return for each unit of risk taken compared to Strategy B.</p>

<h2>Key Takeaways</h2>
<ul>
<li>Return on Risk-Adjusted Capital (RORAC) is a performance metric that measures the return an investment generates relative to the risk it undertakes.</li>
<li>RORAC is calculated by subtracting the risk-free rate from the return and dividing the result by the risk measure.</li>
<li>RORAC helps traders compare the performance of different trading strategies, evaluate risk-reward ratios, and optimize their portfolios.</li>
<li>Traders using MetaTrader 5 can calculate RORAC manually or use custom indicators and Expert Advisors to automate the process.</li>
</ul>