Calculate risk adjusted return

Calculates the risk adjusted return for portfolio of given allocation to the risky asset.

Usage

calc_risk_adjusted_return(
  safe_asset_return,
  risky_asset_return_mean,
  risky_asset_allocation,
  risky_asset_return_sd = NULL,
  risk_aversion = NULL
)

Arguments

safe_asset_return

A numeric. The expected yearly return of the safe asset.

risky_asset_return_mean

A numeric. The expected (average) yearly return of the risky asset.

risky_asset_allocation

A numeric. The allocation to the risky asset. Could be a vector. If it is the optimal allocation then parameters risky_asset_return_sd and risk_aversion can be omitted.

risky_asset_return_sd

A numeric. The standard deviation of the yearly returns of the risky asset.

risk_aversion

A numeric. The risk aversion coefficient.

Value

A numeric. The risk adjusted return.

See also

• How to Determine Our Optimal Asset Allocation?

• Haghani V., White J. (2023) "The Missing Billionaires: A Guide to Better Financial Decisions." ISBN:978-1-119-74791-8.

Examples

calc_risk_adjusted_return(
  safe_asset_return = 0.02,
  risky_asset_return_mean = 0.04,
  risky_asset_return_sd = 0.15,
  risky_asset_allocation = 0.5,
  risk_aversion = 2
)
#> [1] 0.024375

calc_risk_adjusted_return(
  safe_asset_return = 0.02,
  risky_asset_return_mean = 0.04,
  risky_asset_allocation = c(0.25, 0.5, 0.75),
  risky_asset_return_sd = 0.15,
  risk_aversion = 2
)
#> [1] 0.02359375 0.02437500 0.02234375