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Alpha is a way to measure excess return, while beta is used to measure the volatility, or risk, of an asset. Beta might also be referred to as the return you can earn by passively owning the market.
Alpha investing aims to beat the benchmark, while beta investing focuses on how volatile an asset is compared to the market. Alpha vs. beta: Understanding the differences and they work in ...
Alpha is a measure of the active return on an investment, the performance of that investment compared with a suitable market index.An alpha of 1% means the investment's return on investment over a selected period of time was 1% better than the market during that same period; a negative alpha means the investment underperformed the market.
Beta measures the contribution of an individual investment to the risk of the market portfolio that was not reduced by diversification. It does not measure the risk when an investment is held on a stand-alone basis. The beta of an asset is compared to the market as a whole, usually the S&P 500.
Viewed from the implementation side, investment techniques and strategies are the means to either capture risk premia (beta) or to obtain excess returns (alpha). Whereas returns from beta are a result of exposing the portfolio to systematic risks (traditional or alternative), alpha is an exceptional return that an investor or portfolio manager ...
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These equations show that the stock return is influenced by the market (beta), has a firm specific expected value (alpha) and firm-specific unexpected component (residual). Each stock's performance is in relation to the performance of a market index (such as the All Ordinaries). Security analysts often use the SIM for such functions as ...
Investors, whether beginner or seasoned professionals, all have a threshold for risk. Some prefer to play it safe and favor a low-risk investment plan while others are more advantageous with a ...