If you watch CNBC or read the Wall Street Journal, you may hear or see terms and acronyms mentioned by market analysts, investment professionals and the financial press.
What do these terms mean? Although there are many, many terms you may encounter, let’s explain a few of the terms you may need to understand or could be interested in.
Alpha: Alpha is the abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the capital asset pricing model (CAPM). Alpha could be generated by investors selecting specific holdings and/or weightings based on investment analysis.
Beta: Alpha and beta are two of the five standard technical risk calculations, the other three being the standard deviation, R-squared, and Sharpe ratio. Beta represents the overall volatility of an investment relative to the market, which has a beta of 1.0. If an investment has a Beta of 1.2, it would be...