3.5 Interpreting Risk-Adjusted Metrics

Returns alone don’t tell the full story. This article explains how to evaluate portfolios based on how efficiently they deliver returns for the risk they take. It introduces three main groups of risk-adjusted metrics: volatility-based (Sharpe, Sortino, Omega), drawdown-based (Calmar, Recovery Factor, Ulcer Index), and benchmark-relative (Alpha, Treynor, Information Ratio). The article compares these metrics across different portfolio types to show how each KPI brings out different strengths and weaknesses.