Alpha is just one metric that should be analyzed when creating an investment strategy. // It adds the risk premium to the risk-free rate of return to get Ks, the rate of return an investor requires as compensation for the risk. A basic calculation of alpha subtracts the total return of an investment from a comparable benchmark in its asset category. More Articles 1. var slotid = "mps-getad-" + adunit.replace(/\W/g, ""); mps._debug('[MPS]: email address detected in url, bypass gpt. mps.response.dart.adunits[i].data = ''; Several different exogenous variables can impact the slope of the security market line. window._mpspixZ = (function(a){var b="abcdefghiklmnopqrstuvwxyz".split("");a||(a=Math.floor(Math.random()*b.length));for(var c="",d=0;d=3? These are all statistical measurements used in modern portfolio theory (MPT). Alpha is thus also often referred to as “excess return” or “abnormal rate of return,” which refers to the idea that markets are efficient, and so there is no way to systematically earn returns that exceed the broad market as a whole. document.getElementsByTagName("head")[0].appendChild(script); E. a security with a positive beta is considered to be underpriced. !e;this.xhrGuids&&!this.xhrGuids[n]&&(this.xhrGuids[n]=!0,this.totalCbs+=1)}),f.on("xhr-load-removed",function(t,e){var n=""+p(t)+! That stronger negative relation combines with the positive IVOL-beta correlation to produce the beta anomaly. Alpha and beta are important tools for many investors when it comes to figuring out if their investments are doing well.

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