Calculating alpha using the CAPM A more comprehensive way to calculate alpha is through the capital assets pricing model (CAPM), a model that calculates the expected return of a security given its risk. This formula uses beta and the risk-free rate — a rate of return that an investor can...
In trading,alpha refers to the excess or above-market returngenerated by a trader or a trading strategy over a period of time. It is also commonly used to evaluate the performance of an investment, trader, or portfolio manager. A positive alpha denotes outperformance whereas a negative alpha v...
Alpha generation is the creation of a portfolio that gives a different return from what would be expected, given the level of risk...
What is a mutual fund? What is a share of stock? What is investment income? What are money market funds? What is a stock portfolio rate of return? What is an exchange-traded fund? What is exchange traded fund? What is alpha in stocks?
Jensen's alpha is a measure used in finance to evaluate the performance of an investment portfolio relative to a benchmark index. It calculates the excess return generated by the portfolio over the expected return, which is predicted by thecapital asset pricing model (CAPM). This metric is als...
Finance is broad as it involves banking, capital, money, and investment. It represents capital and money management and the processes of acquiring funds. It also entails oversight management of funds, credits, debts, investment, assets, and liabilities in a financial system....
was the CAPM that stated the investment return of an asset could be explained by a single factor: market beta, that is, the security’s sensitivity to the broader market; any remaining return that was not explained by beta was labeled as idiosyncratic, that is, company-specific, or alpha....
Smart beta is a way of investing that combines the benefits ofpassive investingand the advantages ofactive investingstrategies. Smart beta derives from thecapital asset pricing model (CAPM), developed in an attempt to define the relationship between risk and return. As part of this model,betais ...
The CAPM is a simple model and is most commonly used in the finance. It is used to calculate the Weighted Average Cost of Capital/ Cost of equity. But this model is based on a few slightly unreasonable assumptions, such as 'the riskier the investment, the higher the return,' which might...
Answer to: Consider the CAPM. The risk-free rate is 1% and the expected return on the market is 13%. What is the expected return on a portfolio...