Alpha

Definition: A measure of how well the value of a collection of investment (ie: a portfolio) increases above and beyond how it is expected to increase. Two factors that contribute to its expected increase are how well the market as a whole is expected to increase and how risky the investments in the portfolio are.

Example: Alpha is closely related to Beta and the concept of risk-adjusted return. See Beta for an example encompassing these concepts.

Investeach explains: Alpha and Beta are part of a broader area of financial study called Portfolio Theory. This theory helps investors understand the relationship between how much an investment earns and how risky it is. Ideally, we’d like to earn as much as we can on our investments while taking the smallest risk. However, this isn’t easy to achieve because it is the riskier investments that offer you the opportunity to earn the most!

Riddle me this:

1. What two factors are part of the measurement of Alpha?
2. Alpha and Beta are part of what area of financial study?
3. What do we call a collection of specially selected investments designed to spread our risk?

2017-08-30T21:46:46+00:00