Meaning ALPHA: Measure of risk-adjusted performance. An alpha is usually generated by regressing the security or mutual fund's excess return on the S;P 500 excess return. The beta adjusts for the risk (the slope coefficient). The alpha is the intercept. Example: Suppose the mutual fund has a return of 25%, and the short-term interest rate is 5% (excess return is 20%). During the same time the market excess return is 9%. Suppose the beta of the mutual fund is 2.0 (twice as risky as the S;P 500). The expected excess return given the risk is 2 x 9%=18%. The actual excess return is 20%. Hence, the alpha is 2% or 200 basis points. Alpha is also known as the Jensen Index. Related: Risk-adjusted return
More terms such as Alpha in Dictionary A.
- Definition Affordability Index:
- Examples An index that measures the financial ability of consumers to purchase a home alpha definition.
- Definition Agency Cost View:
- Examples The argument that specifies that the various agency costs create a complex environment in which total agency costs are at a minimum with some, but less than 100%, debt financing alpha explain.
- Definition Annual Basis:
- Examples The technique in statistics of taking a figure covering a period of less than one year and extrapolating it to cover a full one year period. The process is known as annualizing alpha what is.
- Definition Accrual Bond:
- Examples A bond on which interest accrues but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity alpha meaning.
- Definition Adjusted Basis:
- Examples Price from which to calculate and derive capital gains or losses upon sale of an asset. Account actions such as any stock splits that have occurred since the initial purchase must be accounted for alpha abbreviation.
