Image via Wikipedia
StockViz now had alpha, beta, Sharpe and information ratio values available for individual stocks. The calculations are done daily using 1 year’s worth of historical data.
“Alpha” is a measure of a manager’s skill by measuring the portion of the managers returns that are not attributable to “Beta”, or the portion of performance attributable to a benchmark. This is how “better” a stock is relative to owning the index (Nifty 50) outright.
“Beta” is similar to correlation. By definition, the market itself has a beta of 1.0. A stock whose returns vary more than the market’s returns has a beta whose absolute value is greater than 1. A stock whose returns vary less than the market’s returns has a beta with an absolute value less than 1.
The “Sharpe” ratio tells us whether a portfolio’s returns are due to smart investment decisions or a result of excess risk. The greater a portfolio’s Sharpe ratio, the better its risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed.
“Information Ratio” relates the degree to which an investment has beaten the benchmark to the consistency with which the investment has beaten the benchmark.
Read the returns series here.
Comments are closed, but trackbacks and pingbacks are open.