## Stocks alpha beta r-squared

Beta, Alpha and R-squared. Beta of a stock is a measure of relative risk of the stock with respect to the market. The convention (though not a rule) is to use S&P 500 index as the proxy for market. A beta value of greater than 1 means that the stock returns amplify the market returns on both the upside and downside. Beta is a multiplicative factor. A stock with a beta of 2 relative to the S&P 500 goes up or down twice as much as the index in a given period of time. If the beta is -2, then the stock moves in the opposite direction of the index by a factor of two. An R-squared measure of 35, for example, means that only 35% of the portfolio's movements can be explained by movements in the benchmark index. R-squared can be used to ascertain the significance of a particular beta or alpha. Generally, a higher R-squared will indicate a more useful beta figure. R-Squared R-Squared is a statistical measure that represents the percentage of a fund portfolio's or security's movements that can be explained by movements in a benchmark index. For equity diversified funds, an R-squared value greater than 0.8 is generally accepted to mean that the underlying beta value is reliable and can be used for the fund. Beta and R-squared should thus be used together when examining a fund's risk profile. They are as inseparable as risk and return. Often referred to as the beta coefficient, beta is an indication of the volatility of a stock, a fund, or a stock portfolio in comparison with the market as a whole. An r-squared of 1.0 would mean that the model fit the data perfectly, with the line going right through every data point. More realistically, with real data you'd get an r-squared of around .85. From that you would conclude that 85% of the fund's performance is explained by its risk exposure, as measured by beta.

## Beta is a multiplicative factor. A stock with a beta of 2 relative to the S&P 500 goes up or down twice as much as the index in a given period of time. If the beta is -2, then the stock moves in the opposite direction of the index by a factor of two.

R-Squared R-Squared is a statistical measure that represents the percentage of a fund portfolio's or security's movements that can be explained by movements in a benchmark index. For equity diversified funds, an R-squared value greater than 0.8 is generally accepted to mean that the underlying beta value is reliable and can be used for the fund. Beta and R-squared should thus be used together when examining a fund's risk profile. They are as inseparable as risk and return. Often referred to as the beta coefficient, beta is an indication of the volatility of a stock, a fund, or a stock portfolio in comparison with the market as a whole. An r-squared of 1.0 would mean that the model fit the data perfectly, with the line going right through every data point. More realistically, with real data you'd get an r-squared of around .85. From that you would conclude that 85% of the fund's performance is explained by its risk exposure, as measured by beta. Alpha stock is a measure of how accurate the prediction was. When investors sell their stocks, they receive an amount which may differ from what they expected. Alphas express this difference as a

### Alpha is a measure of the active return on an investment, the performance of that investment Alpha, along with beta, is one of two key coefficients in the capital asset pricing model used in modern portfolio theory and is closely related to other important quantities such as standard deviation, R-squared and the Sharpe ratio.

Alpha stock is a measure of how accurate the prediction was. When investors sell their stocks, they receive an amount which may differ from what they expected. Alphas express this difference as a Alpha is one of five standard performance ratios that are commonly used to evaluate individual stocks or an investment portfolio, with the other four being beta, standard deviation, R-squared, and the Sharpe ratio Sharpe Ratio The Sharpe Ratio is a measure of risk adjusted return comparing an investment's excess return over the risk free rate to its standard deviation of returns. Beta and alpha calculations provide risk and performance figures, respectively, but they may not always be accurate depending on the R-squared value. R-Squared Examples Also termed the "coefficient of determination," R-squared is a measure between one and 100 that determines what factors are most likely to affect the price of a stock in the future. Primarily examining the asset classes such as stocks and bonds as a group, Modern Portfolio Theory formulas use the statistical measurements of standard deviation, R-squared, Sharpe ratio, beta and alpha. Alpha is the measurement of the effect of investment choices compared to the returns of the larger asset class.

### Alpha is one of five standard performance ratios that are commonly used to evaluate individual stocks or an investment portfolio, with the other four being beta, standard deviation, R-squared, and the Sharpe ratio Sharpe Ratio The Sharpe Ratio is a measure of risk adjusted return comparing an investment's excess return over the risk free rate to its standard deviation of returns.

R-Squared A measure of the squared correlation between a stock's performance and that of the broader market as measured by an appropriate index. In other words, it measures how reliable the stock's beta is in judging its market sensitivity. There are five main indicators of investment risk that apply to the analysis of stocks, bonds and mutual fund portfolios. They are alpha, beta, r-squared, standard deviation and the Sharpe ratio. These statistical measures are historical predictors of investment risk/volatility and they are all major components of modern portfolio theory (MPT). A mutual fund with an R-squared of 100 matches the performance of its benchmark precisely. Beta is a measure of a fund or asset's sensitivity to the correlated moves of a benchmark. A mutual fund with a beta of 1.0 is exactly as sensitive, or volatile, as its benchmark. Beta and alpha calculations provide risk and performance figures, respectively, but they may not always be accurate depending on the R-squared value. R-Squared Examples Also termed the "coefficient of determination," R-squared is a measure between one and 100 that determines what factors are most likely to affect the price of a stock in the future. Beta, Alpha and R-squared. Beta of a stock is a measure of relative risk of the stock with respect to the market. The convention (though not a rule) is to use S&P 500 index as the proxy for market. A beta value of greater than 1 means that the stock returns amplify the market returns on both the upside and downside.

## Because the r-squared measures just how //closely the Stock OR fund tracks the //index with which it is being compared. //An r-squared of 1.0 indicates //A perfect match. AND, in that case, you can //trust that the beta AND alpha measures are //valid, too. But, the lower the r-squared, the less //reliable beta AND alpha measures are.

For equity diversified funds, an R-squared value greater than 0.8 is generally accepted to mean that the underlying beta value is reliable and can be used for the fund. Beta and R-squared should thus be used together when examining a fund's risk profile. They are as inseparable as risk and return. Often referred to as the beta coefficient, beta is an indication of the volatility of a stock, a fund, or a stock portfolio in comparison with the market as a whole.

Alpha is one of five standard performance ratios that are commonly used to evaluate individual stocks or an investment portfolio, with the other four being beta, standard deviation, R-squared, and the Sharpe ratio Sharpe Ratio The Sharpe Ratio is a measure of risk adjusted return comparing an investment's excess return over the risk free rate to its standard deviation of returns. Beta and alpha calculations provide risk and performance figures, respectively, but they may not always be accurate depending on the R-squared value. R-Squared Examples Also termed the "coefficient of determination," R-squared is a measure between one and 100 that determines what factors are most likely to affect the price of a stock in the future. Primarily examining the asset classes such as stocks and bonds as a group, Modern Portfolio Theory formulas use the statistical measurements of standard deviation, R-squared, Sharpe ratio, beta and alpha. Alpha is the measurement of the effect of investment choices compared to the returns of the larger asset class. Because the r-squared measures just how //closely the Stock OR fund tracks the //index with which it is being compared. //An r-squared of 1.0 indicates //A perfect match. AND, in that case, you can //trust that the beta AND alpha measures are //valid, too. But, the lower the r-squared, the less //reliable beta AND alpha measures are. Beta, on the other hand, is based on the volatility—extreme ups and downs in prices or trading—of the stock or fund, something not measured by alpha. But beta, too, is compared to a benchmark