Risk-adjusted returns measure the profitability of an investment while considering the level of risk taken to achieve that return. This concept helps investors understand how much return they are earning for each unit of risk they assume. By comparing investments with different risk profiles, investors can make more informed decisions. Common methods to calculate risk-adjusted returns include the Sharpe Ratio and Treynor Ratio. These metrics allow investors to evaluate performance relative to risk, helping them identify investments that offer the best potential returns for the level of risk they are willing to accept.