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The measure of a stock’s expected return
By Dr. David Edward Marcinko MBA CMP®
SPONSOR: http://www.CertifiedMedicalPlanner.org
May 12, 2021
Markets DOW 33,587.66 ▼ -681.50 NASDAQ 13,031.68 ▼ -357.75 S&P 500 4,062.90 ▼ -89.20 Crude Oil 65.85 ▲ +0.57
Alpha: The measure of the amount of a stock’s expected return that is not related to the stock’s sensitivity to market volatility. It measures the residual non-market influences that contribute to a securities risk unique to each security.
Alpha uses beta as a measure of risk, a benchmark and a risk free rate of return (usually T-bills) to compare actual performance with expected performance.
CITATION: https://www.r2library.com/Resource/Title/0826102549
For example, a fund with a beta of .80 in a market that rises 10% is expected to rise 8%. If the risk-free return is 3%, the alpha would be –.6%, calculated as follows:
(Fund return – Risk-free return) – (Beta x Excess return) = Alpha
(8% – 3%) – [.8 × (10% – 3%)] = – .6%
A positive alpha indicates out performance while a negative alpha means under-performance.
ENDOWMENT ALPHA: https://medicalexecutivepost.com/2010/07/28/managing-for-endowment-portfolio-alpha/
QUEST FOR ALPHA: https://medicalexecutivepost.com/2011/10/31/%e2%80%9cthe-quest-for-alpha%e2%80%9d/
ALPHA versus BETA Podcast: https://youtu.be/dP_23vKJ3HQ
SECOND OPINIONS: https://medicalexecutivepost.com/schedule-a-consultation/
INVITE DR. MARCINKO: https://medicalexecutivepost.com/dr-david-marcinkos-bookings/
THANK YOU
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Filed under: "Ask-an-Advisor", iMBA, Inc., Investing, Risk Management | Tagged: alpha, beta, David Edward Marcinko, investihg alpha, Investing, stock expected rate return |
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