Alpha and Beta
When it comes to quantifying investment value and risks, statistical tools such as alpha and beta are important to investors. Simply put, both alpha and beta are risk ratios designed to determine the risk reward profile of investment securities.
Alpha measures the performance of an investment portfolio and compares it to a benchmark index such as the S&P 500 or the U.S. Treasury Note. The excess return between the asset and the benchmark is referred to as alpha. A positive alpha of 1.0 refers to a fund outperforming the benchmark by 1.0 ...
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...t investor faces a 5 percent chance of losing the entire investment in any given month. The VAR methodology is not the most comprehensive measure of risk, however due to its simplistic approach, still remains one of the most popular measure in portfolio management.
Investing in financial markets is inherently risky. Many individuals utilize financial advisors and wealth managers to increase returns and reduce the risk of investment. Fundamentally, trained financial professionals utilize statistical measures and risk reward models to differentiate volatile assets from stable. Modern portfolio theory asserts 5 statistical indicators consisting of alpha, beta, standard deviation, R Square, and the Sharpe Ratio. Likewise, Capital Asset Pricing Model and Value at Risk are widely utilized to measure the risk to reward tradeoff with assets and portfolios.
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