A risk–return analysis seeks “efficient portfolios”, i.e., those which provide maximum return on average for a given level of portfolio risk. It examines investment opportunities in terms familiar to the financial practitioner: the risk and return of the investment portfolio.

How is risk/return analysis calculated?

It is calculated by taking the return of the investment, subtracting the risk-free rate, and dividing this result by the investment's standard deviation. All else equal, a higher Sharpe ratio is better.

How do you measure risk and return?

Risk is measured by the amount of volatility, that is, the difference between actual returns and average (expected) returns.