What are alpha and beta, and why are they such important investment concepts?

Chat logo Chat with this page

Alpha and beta are two important concepts in investing. Alpha is a measure of an investment’s performance relative to a benchmark index, such as the S&P 500. It represents the excess return on an investment above the return of the benchmark index. For example, if an investment has an alpha of 0.5, it means that it has outperformed the benchmark index by 0.5%.

Beta, on the other hand, is a measure of an investment’s volatility or risk relative to the overall market. It is calculated by dividing the covariance of an investment’s returns with the market by the variance of the market’s returns. A beta of 1 indicates that an investment has the same level of volatility as the market, while a beta greater than 1 indicates that an investment is more volatile than the market, and a beta less than 1 indicates that an investment is less volatile than the market.

Alpha and beta are important investment concepts because they allow investors to evaluate the performance and risk of an investment relative to the market. By understanding an investment’s alpha and beta, investors can determine whether an investment is outperforming or underperforming the market, and whether it is taking on more or less risk than the market. This information can help investors to make informed decisions about their investments and to develop well-diversified portfolios.

“The central idea in The Black Swan is that: rare events cannot be estimated from empirical observation since they are rare.” – Nassim Nicholas Taleb

WELCOME BACK

Page content will refresh after entry.

Let´s create your 100%-free membership, instantly
Complete
Your membership has been created, next:
This link is already saved
Your link has been saved

BLOOMBERG GLOBAL NEWS

Bloomberg video news feed with live charts, watchlists & fundamentals
Audio/video feed with live charts, watchlists & fundamentals
CHARTS + FEED

RBA ECONOMIC UPDATES

Periodic updates on the Australian economy, direct from the RBA, with live charts, watchlists & fundamentals
Audio/video feed with live charts, watchlists & fundamentals
CHARTS + FEED

US FEDERAL RESERVE UPDATES

Bloomberg News focussed upon the Federal Reserve, with live charts, watchlists & fundamentals
Audio/video feed with live charts, watchlists & fundamentals
CHARTS + FEED

FX/GLOBAL BRIEFS

Brief global updates with a focus upon currencies, with live charts, watchlists & fundamentals
Audio/video feed with live charts, watchlists & fundamentals
CHARTS + FEED

ASX MARKET UPDATES

ASX-focussed updates, with live charts, watchlists & fundamentals
Audio/video feed with live charts, watchlists & fundamentals
CHARTS + FEED

BLOOMBERG BRIEFS

Global briefs from Bloomberg with live charts, watchlists & fundamentals
Audio/video feed with live charts, watchlists & fundamentals
CHARTS + FEED

Let´s create your 100%-free membership, instantly

Complete
Your membership has been created, next: