What is a good alpha for a stock?

An alpha of zero suggests that an asset has earned a return commensurate with the risk. Alpha of greater than zero means an investment outperformed, after adjusting for volatility. When hedge fund managers talk about high alpha, they’re usually saying that their managers are good enough to outperform the market.

What is a good beta for a stock?

Beta is a concept that measures the expected move in a stock relative to movements in the overall market. A beta greater than 1.0 suggests that the stock is more volatile than the broader market, and a beta less than 1.0 indicates a stock with lower volatility.

What does a stock beta of 1.5 mean?

Roughly speaking, a security with a beta of 1.5, will have move, on average, 1.5 times the market return. [More precisely, that stock’s excess return (over and above a short-term money market rate) is expected to move 1.5 times the market excess return).]

What does a beta of 0.7 mean?

A fund with a beta of 0.7 has experienced gains and losses that are 70\% of the benchmark’s changes. A beta of 1.3 means the total return is likely to move up or down 30\% more than the index.

What is r2 in investing?

R-squared is a measure of the percentage of an asset or mutual fund’s performance as a result of a benchmark. Fund managers use a benchmark to evaluate the performance of a mutual fund. R-squared measures the degree to which the fund’s performance can be attributed to the performance of the selected benchmark index.

What is the highest beta a stock can have?

There is no cap or maximum to a stock’s beta. A stock’s beta represents the sensitivity of a firm’s stock returns to the overall market risk. Positive values of beta represent co-movement of the stock with the broad stock market, while negative beta values indicate that the stock price moves opposite the stock market.

What does a beta of 2.5 mean?

Beta, also known as the beta coefficient, measures how the expected return of a stock is correlated to the performance of the stock market as a whole. A positive beta, such as a one or two, means that the stock usually tracks the market in general.

Is a negative beta good or bad?

Negative beta: A beta less than 0, which would indicate an inverse relation to the market, is possible but highly unlikely. Some investors argue that gold and gold stocks should have negative betas because they tend to do better when the stock market declines. Many new technology companies have a beta higher than 1.

How do you calculate the beta of a stock?

Beta could be calculated by first dividing the security’s standard deviation of returns by the benchmark’s standard deviation of returns. The resulting value is multiplied by the correlation of the security’s returns and the benchmark’s returns.

What Sharpe ratio is good?

Usually, any Sharpe ratio greater than 1.0 is considered acceptable to good by investors. A ratio higher than 2.0 is rated as very good. A ratio of 3.0 or higher is considered excellent. A ratio under 1.0 is considered sub-optimal.

What does beta mean when considering a stock’s risk?

Beta is a measurement of market risk or volatility. That is, it indicates how much the price of a stock tends to fluctuate up and down compared to other stocks. Beta indicates how volatile a stock’s price is in comparison to the overall stock market.

What is alpha beta investing?

Alpha – Alpha is a measure of returns after risk is considered. Risk is defined as beta, which is the next term to define. Beta – Beta is a statistical correlation between an investment and the broad market. Beta is a measure of how volatile one investment is compared to the volatility of the S&P 500 index.

What is alpha and beta in finance?

Alpha and beta are both risk ratios that investors use as a tool to calculate, compare and predict returns. They’re very important numbers to know, but one must check carefully to see how they are calculated. (For more, see: A Deeper Look at Alpha.)

What is beta of stocks?

A stock beta is an assessment of a stock’s tendency to undergo price changes, or its volatility, as well as its potential returns compared to the market in general.