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What is Modigliani risk-adjusted performance?

Modigliani risk-adjusted performance

A measure of the returns of an investment portfolio, adjusted for the risk of the portfolio relative to a benchmark.

Where have you heard about Modigliani risk-adjusted performance?

It was developed by Franco Modigliani and Leah Modigliani (his granddaughter) in 1997. You may also hear it referred to as M2, the Modigliani-Modigliani measure or RAP.

What you need to know about Modigliani risk-adjusted performance.

It’s a measure that investors can use to determine how well an investment portfolio rewards them for the level of risk taken. It first looks at the return a portfolio generates over and above a benchmark (e.g. the market). Then it adjusts this for risk. If a portfolio had twice as much risk as the benchmark, it would need to have twice the excess return to have the same level of risk-adjusted return.

The Modiglianis developed the measure as an alternative to the Sharpe ratio which could be more easily understood by average investors. It’s expressed in units of percentage return, making it easier to compare the difference between two investment portfolios.

Find out more about Modigliani risk-adjusted performance.

Modigliani risk-adjusted performance is a derivation of the widely-used Sharpe ratio. Read our guide to the Sharpe ratio to find out what the differences are.

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