Risk-adjusted return evaluates performance in relation to the risk taken to produce it. It is an approach to comparison, not one universally defined statistic. Different measures emphasize overall volatility, downside variability or peak-to-trough losses.
Why return alone is incomplete
Imagine two hypothetical strategies that both finish a year up 15%. One falls 5% from its peak along the way; the other falls 35%. Their final returns are equal, but the experience and loss exposure are not.
The reverse is also important: a strategy with a smaller headline return may have taken much less risk. That does not automatically make it preferable, but it changes what the return figure means.
There is more than one risk lens
Sharpe compares excess return with overall variability. Sortino focuses on downside deviation. A return-to-drawdown measure compares performance with the largest observed decline. Each answers a different question, so none should be mistaken for a complete risk assessment.
A fair comparison also uses the same period and consistent treatment of costs, leverage and capital flows. A backtested result and a live account result may involve materially different assumptions.
For AlphaNet strategy evaluation, the practical principle is to read returns alongside the path taken to earn them. A single high percentage cannot explain volatility, concentration, losses or the reliability of the available evidence.