Define the risk-adjusted rate of returns

Finance
#1

You can’t only look at the expected return while evaluating an investment. If the profit from investment A exceeds the profit from investment B, you may wish to choose investment A right away.
However, investment A may have a higher risk of total loss than investment B, thus even while the profit maybe more, it is a far riskier investment and thus not necessarily a better one.
When you calculate the adjusted rate of return, you take into account not just the potential return on investment, but also the risk involved.
Usually, the adjusted rate of return is expressed as a number or a rating.

#2

Risk Adjusted Return

The relationship between the risk and return from an investment is a direct one implying that the investor who invests in a high risk investment will expect to be compensated by higher returns. Risk adjusted return relates the return from an investment to the risk taken to generate it.

Sharpe Ratio = (Portfolio return- Risk free return)/ Standard deviation of portfolio

Treynor Ratio = (Portfolio return- Risk free return)/ Beta of portfolio