Advertising

Alpha

• Is a measure of the incremental reward (or loss) that an investor gained in relation to the market. Typically, this is measured as performance of a selected portfolio relative to a market benchmark. An enhanced S&P 500 portfolio might have an alpha of .25 which means that the pickup was .25% or a quarter point better than the standard.

• A measure of selection risk (also known as residual risk) of a mutual fund in relation to the market. A positive alpha is the extra return awarded to the investor for taking a risk, instead of accepting the market return. For example, an alpha of 0.4 means the fund outperformed the market-based return estimate by 0.4%. An alpha of -0.6 means a fund's monthly return was 0.6% less than would have been predicted from the change in the market alone. In a Jensen Index, it is factor to represent the portfolio's performance that diverges from its beta, representing a measure of the manager's performance.

 
 Embedded terms in definition
 Benchmark
Beta
Change
Factor
Index
Investor
Its
Jensen index
Market return
Market
Mutual fund
Pickup
Point
Portfolio
Residual risk
Return
Risk
S&p 500
S&p
 
 Referenced Terms
 Alpha equation: The Alpha of a fund is determined as follows: [ (sum of y) -((b)(sum of x)) ] / n where: n =number of observations (36 months) b = beta of the fund x = rate of return for the S&P 500 y = rate of return for the fund

 Appraisal ratio: The signal-to-noise ratio of an analyst's forecasts. The ratio of Alpha to residual standard deviation.

 Expected excess return: Is equal to the nonmarket or Alpha return plus the beta-adjusted market or systematic return. Since beta relates an asset's return to the market, then the alpha distinguishes it from the market. Algebraically, this is presented by the expression for a straight line or excess return equals a (alpha) + b (beta)X (market return).

 Jensen index: An index that uses the capital asset pricing model to determine whether a money manager outperformed a market index. The Alpha of an investment or investment manager.

 Statistical analysis: Is a mathematical approach which quantifies market action. In its general form, it is reliant on large sample statistics and linear analysis. It assumes independence. Its popular terms are: the mean, variance, standard deviation, Alpha and beta.

 
 Related Terms
 Alpha equation

<< Alm Alpha equation >>

Tips for Trying to Fix a Clogged or "Frozen" Home Equity Line: For years, homeowners have turned to home equity lines of credit (HELOCs) as a way to borrow against their home's value to pay for college tuition, home improvements, medical bills and other major expenses. (A home's equity is the market value minus what is owed on the mortgage. If you owe $100,000 on your mortgage but your home is worth $250,000, your equity is $150,000.) More...

A friend is one who knows us, but loves us anyway. - Fr. Jerome Cummings

Advertising



Copyright 2009-2019 GVC. All rights reserved.