![]() ![]() There's also a single, more complex financial formula for Jensen's alpha (also represented by the Greek letter α), which measures how well an investment performed relative to its expected return based on its risk. Investors could use the capital asset pricing model (CAPM) to find the expected rate of return given an investment's beta. Target a unique audience Over 900M active professionals are on LinkedIn. We want to help the world reach net zero and improve peoples lives. "If the portfolio took the same risk as the market, meaning a beta of 1, that extra return would have come from 'picking the right securities,' or alpha," says Bain. LinkedIn ads helps businesses of any size achieve their goals and reach their target market. Our purpose is reimagining energy for people and our planet. The higher rate of return was expected because of the beta, and, as a result, the alpha would be zero. If the fund is 10% riskier, it has a beta of 1.1. Say the S&P 500 increases by 10% and a fund increases by 11%. "Beta measures that portion of the return as it relates to the risk taken relative to the broad market, while alpha identifies that portion of the portfolio return that is a result of security selection." For example, if a stock performs 3 better than the S&P 500, the alpha of that stock would be 3. Specifically, alpha indicates the percentage below or above a benchmark index the stock achieved, but is represented as a single number. "Beta and alpha are terms used to describe the components of a portfolio's return," says Tim Bain, president and chief investment officer at Spark Asset Management. Alpha measures the return on an investment compared to a market index or benchmark.
0 Comments
Leave a Reply. |