Thursday, 24th August 2017
Social media Waterford Today on Twitter Waterford Today on Facebook

John Smiles

Qualified Financial Advisor

In investment terms, what is Alpha?

When discussing investment strategy, investment fund managers and analysts talk about alpha and beta.

Beta is defined as the element of investment return or portfolio returns that can be explained by market risk, or by exposure of the investment to the market. This is the return any investor would expect to receive from the market just for being invested.

Most investors seek to get the highest return possible on their investments for the least amount of risk. This extra return above the beta can be measured by alpha. Alpha is understood to be a measurable way to determine whether a manager's skill has added value to a fund on a risk-adjusted basis.

The very existence of alpha is controversial, however, because those who believe in the efficient market hypothesis (which says, among other things, that it is impossible to beat the market) attribute alpha to luck instead of skill and base this belief on the fact that most managers fail to beat the market over the long-term.

Alpha is the rate of return that exceeds what was expected or predicted by models like the capital asset pricing model (CAPM). The main part of the CAPM formula calculates what the rate of return on a certain security or portfolio ought to be under certain market conditions.

In a theoretical portfolio, if the fund manager expects the market to grow by 10% and the portfolio returns a growth of 12%, the alpha of the portfolio = 12% – 10% = 2%.

Alpha is also known as "excess return" or "abnormal rate of return," and is one of the most widely used measures of risk-adjusted performance. The number shows how much better or worse a fund performed relative to a benchmark. This difference is then attributed to the decisions made by the fund's management.

Two similar portfolios might carry the same amount of risk (same beta) but because of different alphas, it's possible for one to generate higher returns than the other. This is a fundamental quandary for investors, who always want the highest return for the least amount of risk.

Facebook

Letters to the Editor

  • OUR VIEW

    School CostsAlthough we are still just at the start of August many parents will already be figuring out exactly how much they will have to hand over for their children to go back to school. The children's charity Barnardo's have just compiled a report saying that for a primary school child the figure will hit nearly 400 euro while a secondary school child will have to have roughly 750 euro paid out to ensure that they have everything that they need. And of course these figures are just for going back to …

    read more »

Weekly Poll

sisli escort,esenyurt escort,istanbul escort,
pendik escort,pendik escort,kartal escort,pendik escort,ataköy escort,ataköy escort,mersin escort,mersin escort,ankara escort,şişli escort,ankara escort,ankara escort,beşiktaş escort,istanbul travesti,
paykasa bozdurma,paykasa bozdurma,astropay bozdurma,paykasa,paykasa,paykasa bozdurma,paykasa,astropay bozdurma,justin kart,bitcoin bozdurma,paykasa bozum,paykasa kart bozdurma,paykasa bozdurma yüksek kur,güvenli paykasa bozdurma,
ofis taşıma,evden eve nakliyat,
maltepe escort,
kartal escort,ateşehir escort,kurtköy escort,pendik escort,maltepe escort,

eskişehir escort

escort eskişehir

alanya escort

wso shell url tara mass alexa sorgula base64 decode hacklink satış wordpress themes youtube mp3 download eskişehir escort escort eskişehir