Risk-adjusted returns refer to the amount of profit earned on an investment relative to the level of risk taken to achieve that profit. This concept is crucial in evaluating the performance of investments, as it helps investors understand how much return they are getting for the risks they are assuming, leading to better decision-making. By assessing risk-adjusted returns, investors can compare the effectiveness of different investment strategies and portfolios, taking into account not just how much money they make, but how much risk they have to endure to achieve those gains.
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