> For the complete documentation index, see [llms.txt](https://docs.uptick.co/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.uptick.co/prism/risk-and-return-metrics.md).

# Risk & Return Metrics

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Evaluate your portfolio's risk using return metrics, correlation, liquidity, and custom aggregated risk scores for individual tokens. Compare various metrics for optimized and benchmark portfolios.
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## <mark style="color:blue;">Application Overview</mark>

Risk metrics play a crucial role in assessing the performance and potential risks associated with a portfolio. PRISM offers a comprehensive suite of risk metrics that enable users to better understand the risk-return profile of their portfolios and make well-informed investment decisions.\
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Return metrics are essential in evaluating the performance of a portfolio and help investors gauge the potential returns associated with their investments. PRISM calculates various return metrics, enabling users to compare their portfolios against benchmarks and make well-informed decisions.

<table><thead><tr><th width="201.5">Metrics</th><th>Explanation</th></tr></thead><tbody><tr><td>Volatility</td><td>Volatility measures the degree of fluctuation in the prices of assets within a portfolio. A higher volatility indicates a higher level of risk associated with the portfolio.</td></tr><tr><td>Sharpe Ratio</td><td>The Sharpe Ratio compares the risk-adjusted return of a portfolio to a risk-free asset, such as a Treasury bond. A higher Sharpe Ratio indicates a better risk-return trade-off.</td></tr><tr><td>Sortino Ratio</td><td>The Sortino Ratio is similar to the Sharpe Ratio but focuses on downside risk. It evaluates the risk-adjusted return of a portfolio, taking into account only the negative price fluctuations.</td></tr><tr><td>Max Drawdown</td><td>Max Drawdown measures the largest peak-to-trough decline in the value of a portfolio over a specified period. It helps assess the potential loss an investor may face during adverse market conditions.</td></tr><tr><td>Conditional Value at Risk (CVaR)</td><td>CVaR estimates the potential loss a portfolio may face under extreme market conditions, beyond a certain level of confidence. It provides a more comprehensive view of the tail risk associated with a portfolio.</td></tr><tr><td>Beta</td><td>Beta measures the sensitivity of a portfolio's returns to the overall market. A portfolio with a beta greater than one is considered more volatile than the market, while a beta less than one indicates lower volatility.</td></tr><tr><td>Cumulative Return</td><td>Cumulative Return measures the total percentage gain or loss on a portfolio over a specified period.</td></tr><tr><td>Annualized Return</td><td>Annualized Return calculates the average return of a portfolio on an annual basis, allowing for easier comparison across different time horizons.</td></tr><tr><td>Risk-Adjusted Return</td><td>Risk-Adjusted Return considers both the return and risk associated with a portfolio, providing a more comprehensive view of its performance.</td></tr><tr><td>Correlation</td><td>Correlation measures the degree to which the returns of two assets move together. PRISM calculates the correlation matrix for the assets within a portfolio, enabling users to assess the diversification benefits and identify potential sources of risk.</td></tr><tr><td>Liquidity</td><td>Liquidity measures the ease with which assets can be bought or sold without affecting their market price. PRISM calculates a liquidity score for each token in the portfolio, helping users understand the potential impact of their trades on market prices and make more informed investment decisions.</td></tr><tr><td>Risk Score</td><td>PRISM provides a custom aggregated risk score for tokens, which combines various risk metrics such as volatility, correlation, and liquidity into a single score. This comprehensive risk assessment allows users to quickly evaluate the overall risk profile of each token and make better-informed investment decisions.</td></tr></tbody></table>