# Risk-Adjusted Yield
Raw yield (APY) is insufficient for evaluating DeFi opportunities without risk context.
A 50% APY pool with extreme volatility and low liquidity may deliver worse risk-adjusted outcomes than a 5% APY position in a stable, liquid protocol. Headline yield attracts capital, but risk-adjusted yield determines whether that capital is preserved.
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#### How RAX Calculates Risk-Adjusted Yield
RAX computes risk-adjusted yield as:
Risk-Adjusted Yield = APY / (1 + Risk Score / 100)
A pool with 12% APY and a risk score of 30 has a risk-adjusted yield of approximately 9.2. The same 12% APY with a risk score of 70 drops to approximately 7.1.
This metric feeds into the Intelligence Score and directly influences the allocation engine. Under defensive and balanced strategy profiles, the engine favors positions with higher risk-adjusted yield over raw APY.
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#### Role in Allocation
Strategies that deliver more return per unit of risk are favored, especially under defensive or balanced profiles. Higher-yield strategies with weaker risk-adjusted performance may be deprioritized even if headline returns appear attractive.
This ensures the system does not chase yield at the expense of portfolio stability — a core design principle of RAX.
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#### Limitations
Risk-adjusted yield is backward-looking — it uses current APY and current risk scores. It does not account for future changes in either metric. It should be used alongside simulations and stress testing, not as a standalone decision signal.
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