<p>Risk-Adjusted Return is a performance metric used in investment analysis that measures the net profit or loss of an investment relative to its risk. It provides a more comprehensive view of an investment's performance by considering both its returns and the level of risk taken to achieve those returns.</p>

<h2>How It Works</h2>
<p>Risk-Adjusted Return is typically calculated using the following formula:</p>
<ul>
  <li><strong>Risk-Adjusted Return = (Return - Risk-Free Rate) / Volatility</strong></li>
</ul>
<p>Here's a breakdown of the formula:</p>
<ul>
  <li><strong>Return</strong> - The actual return of the investment.</li>
  <li><strong>Risk-Free Rate</strong> - The theoretical return on an investment with zero risk, often represented by the yield on government bonds.</li>
  <li><strong>Volatility</strong> - A measure of the investment's risk, often represented by its standard deviation.</li>
</ul>

<h2>Why It Matters</h2>
<p>Risk-Adjusted Return is a crucial metric for investors as it helps them understand the trade-off between risk and return. For instance, consider two investments, A and B:</p>
<ul>
  <li>Investment A provides a 10% return with a volatility of 5%.</li>
  <li>Investment B provides a 15% return with a volatility of 10%.</li>
</ul>
<p>While Investment B has a higher return, its risk is also higher. Using the Risk-Adjusted Return formula, we can compare these investments on a risk-adjusted basis:</p>
<ul>
  <li>Risk-Adjusted Return of Investment A = (10% - 3%) / 5% = 1.4</li>
  <li>Risk-Adjusted Return of Investment B = (15% - 3%) / 10% = 1.2</li>
</ul>
<p>In this case, despite its higher return, Investment B has a lower Risk-Adjusted Return, indicating that Investment A might be a better choice for risk-averse investors.</p>