Seeking Investment Alpha Alpha is commonly used to rank active mutual funds as well as all other types of investments. It is often represented as a single number (like +3.0 or -5.0), and this typically refers to a percentage measuring how the portfolio or fund performed compared to the referenced benchmark index (i.e., 3% better or 5% worse).
What does alpha mean in stocks?
Investors typically view stocks with positive alpha values as good investments likely to produce excess returns. Conversely, investors expect a stock with a negative alpha value to perform poorly.
What is Seeking Alpha?
Seeking Alpha is a crowd-sourced content service for financial markets. Articles and research covers a broad range of stocks, asset classes, ETFs and investment strategies.
Are your stock investments providing positive alpha to your portfolio?
To evaluate whether your stock investments are providing positive alpha to your portfolio, select a benchmark against which to compare your results. Your benchmark can be a stock index or exchange traded fund -- ETF -- with risk characteristics similar to your portfolio.
Does Seeking Alpha manipulate the stock market?
Given Seeking Alpha's popularity, some investors take advantage of it to manipulate the market for their benefit.
Are Seeking Alpha stock picks good?
Simply put: Seeking Alpha's Very Bullish rated stocks CRUSH the market by 4x; and their Very Bearish rated stocks lag the market by 306%. As you can see, Seeking Alpha has a stellar history of accuracy when it comes to evaluating stocks through quantitative analysis.
What does alpha tell you about a stock?
Alpha is one of the five major risk management indicators for mutual funds, stocks, and bonds. In a sense, it tells investors whether an asset has consistently performed better or worse than its beta predicts. Alpha is also a measure of risk. An alpha of -15 means the investment was far too risky given the return.
What mean by Seeking Alpha?
Seeking Alpha is the world's largest investing community. Powered by the wisdom and diversity of crowdsourcing - millions of passionate investors connect daily to discover and share new investing ideas, discuss the latest news, debate the merits of stocks, and make informed investment decisions.
Does a positive alpha mean a stock is overpriced?
A positive alpha indicates the security is outperforming the market.
Do you want a high or low alpha?
A high alpha is always good. A high beta may be preferred by an investor in growth stocks but shunned by investors who seek steady returns and lower risk.
What is a good alpha score?
The general rule of thumb is that a Cronbach's alpha of . 70 and above is good, . 80 and above is better, and . 90 and above is best.
Is Seeking Alpha still free?
Effective Jan. 4, 2021, a free user can access 5 articles a month without paying; after that they would be asked to subscribe to Seeking Alpha Premium. The cost of the plan, as of Feb. 7, 2021, was $19.99 per month billed annually or $29.99 billed monthly.
Who Is Seeking Alpha owned by?
David Jackson - FounderDavid Jackson - Founder, CEO David Jackson is the founder of Seeking Alpha. He started his career as a macro-economist at HM Treasury in London and The Bank of Israel, and later moved to Morgan Stanley in New York as a technology research analyst covering the communications equipment sector.
Whats a good beta for a stock?
The market as a whole has a beta of 1. Stocks with a value greater than 1 are more volatile than the market, and stocks with a beta of less than 1 have a smoother ride. Beta operates as a good comparison point to a broader index fund, but it doesn't offer a complete portrait of a stock's risk.
What does a negative stock alpha mean?
The difference between the fund's actual return and its expected return is its alpha. If alpha is positive, it means that the fund returned more than its expected return, whereas a negative alpha indicates that the fund returned less.
Do you want positive or negative beta?
A positive beta is associated with a tendency of the portfolio to move in the same direction as the market. A negative beta is associated with the expectation that a portfolio will move in the opposite direction of the market. A beta close to zero indicates the portfolio is not influenced by the market's direction.
What does alpha mean in investing?
In other words, alpha is the return on an investment that is not a result of a general movement in the greater market.
What is the alpha of an investment?
Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole . The excess return of an investment relative to the return of a benchmark index is the investment’s alpha. Alpha may be positive or negative and is ...
What does Alpha mean in mutual funds?
Alpha is commonly used to rank active mutual funds as well as all other types of investments. It is often represented as a single number (like +3.0 or -5.0), and this typically refers to a percentage measuring how the portfolio or fund performed compared to the referenced benchmark index (i.e., 3% better or 5% worse).
What is the difference between alpha and beta?
Alpha may be positive or negative and is the result of active investing. Beta, on the other hand, can be earned through passive index investing .
What is the Alpha Risk?
Alpha is one of five popular technical investment risk ratios. The others are beta, standard deviation , R-squared, and the Sharpe ratio. These are all statistical measurements used in modern portfolio theory (MPT). All of these indicators are intended to help investors determine the risk-return profile of an investment.
What does alpha mean in financial terms?
Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market return over some period. ...
What is the entire investing universe?
The entire investing universe offers a broad range of securities, investment products, and advisory options for investors to consider. Different market cycles also have an influence on the alpha of investments across different asset classes.
What do investors look for when buying stocks?
Risk and Return. When investors buy stocks or bonds, they look at whether they can earn income and whether they are likely to get their money back. If there is no risk of losing their investment, they will settle for a low level of income.
What do stock market analysts do?
Stock market analysts use various methods to predict the performance of stocks. They develop models to analyze risk, compare a company's stock to risk-free investments, and calculate what the minimum return on the company stock should be to compensate investors for the assumed risk.
How does capital asset pricing work?
The Capital Assets Pricing Model calculates what return investors need to compensate for a specific level of risk. It defines a risk-free rate of return Krf, usually the rate on U.S. government Treasury bonds, and an expected rate of return Km. It subtracts the risk-free rate from the expected rate and weights it with a risk factor Beta to get a risk premium. It adds the risk premium to the risk-free rate of return to get Ks, the rate of return an investor requires as compensation for the risk.
What is the Alpha of a stock?
Alpha is the difference between a stock's actual return and its expected return adjusted for risk.
What does it mean when a stock has a positive alpha?
Interpreting Alpha. A positive alpha value indicates that a given stock is performing better than expected, while a negative alpha value indicates that the stock is performing worse than expected. Investors typically view stocks with positive alpha values as good investments likely to produce excess returns. Conversely, investors expect ...
What is capital asset pricing model?
The capital asset pricing model is a formula used to determine an asset's expected return based on its beta value. When beta is less than 1.0, the stock's CAPM value will be lower than the average market return. When the beta value is greater than 1.0, the stock's CAPM value will be higher than the average market return.
What does beta mean in stocks?
A stock's beta value is its overall risk compared to other market investments. If beta is greater than 1.0, the risk is higher than the average market risk and its return should be higher than average market returns.
Is alpha value a risk?
No investment is without risk. A stock's alpha value does not guarantee its future performance. A stock performing well at the time of the calculation may perform poorly in the future. Likewise, stocks currently producing negative alpha values may not always perform poorly.
What is alpha in stock market?
In general terms, alpha in the stock market is a measurement of how the returns of an investment portfolio compare against the overall market or a benchmark on a risk-adjusted basis. Investors know that they can get higher potential returns through riskier investments. Alpha is the measurement of how well an investor or portfolio manager did compared to the market when the risk is factored out. The goal of all investors is to make more money at less risk -- finding more alpha.
What is an alpha?
Alpha is a statistical measurement out of the investment discipline called Modern Portfolio Theory. MPT is concerned with calculating expected investment returns considering the measurable risk, volatility and the risk-free rate of return. Primarily examining the asset classes such as stocks and bonds as a group, ...
How to achieve positive alpha?
To achieve positive alpha, select stocks with higher potential for gains at comparable or lower risk. This may be accomplished by comparing competitor companies and picking the stock with the best potential.
How is Alpha measured?
Alpha is measured on a simple decimal fraction (e.g., 0.7 or 1.2). A value that is higher than 1.0 indicates that the investment has more potential for gains than losses and vice versa. An alpha of zero represents an absolute performance track record against that of the market index.
Risk and return
When buying bonds or stocks investors look for the potential income opportunities that could be created from such a transaction. In this situation, if an individual doesn’t face securing an investment, she can settle on only one low level of income.
What is risk free rate?
This is an investment that has theoretically zero risks. Most investments do have some risk, even it is very small like US Treasuries.
Capital Asset Pricing Model (CAPM)
The capital asset pricing model is the whole or systematic risk and expected return (ROI) for investments. It helps investors understand the true risk vs reward of potential investments such as stocks.
Is positive Alpha good?
Yes, as mentioned above, a positive Alpha is generally good. This means that the investment or portfolio performed better than the benchmark index.
What is a benchmark index?
A benchmark index is an index used by the investment community as a point of reference for the performance of different stock segments.
Individual Investor Alpha
As an individual investor, the concept of Alpha can be used to evaluate current and new stock investments. For an increased alpha, select stocks of lower risk with high potential gains. For example, you may have to compare competitor companies and choose one that shows the most potential.
What does alpha of 1.0 mean?
An alpha of 1.0 means the investment outperformed its benchmark index by 1%. An alpha of -1.0 means the investment underperformed its benchmark index by 1%. If the alpha is zero, its return matched the benchmark. Note, alpha is a historical number.
What does beta mean in stocks?
Beta indicates how volatile a stock's price has been in comparison to the market as a whole. A high alpha is always good. A high beta may be preferred by an investor in growth stocks but shunned by investors who seek steady returns and lower risk. 1:26.
What is beta in investing?
Beta: An Overview. Alpha and beta are two of the key measurements used to evaluate the performance of a stock, a fund, or an investment portfolio. Alpha measures the amount that the investment has returned in comparison to the market index or other broad benchmark that it is compared against. Beta measures the relative volatility of an investment. ...
What does it mean when a stock has a beta of 1.5?
If a stock's beta is 1.5, it is considered to be 50% more volatile than the overall market. Like alpha, beta is a historical number.
What is the purpose of beta?
Beta measures the relative volatility of an investment. It is an indication of its relative risk. Alpha and beta are standard calculations that are used to evaluate an investment portfolio’s returns, along with standard deviation, R-squared, and the Sharpe ratio .
What is seeking alpha?
Seeking Alpha has been alleged to be a platform for market manipulators. Given Seeking Alpha's popularity, some investors take advantage of it to manipulate the market for their benefit. To do so, they typically post highly negative news or analysis about a company and their stock, urging the readers to sell their shares and not to buy any new shares, causing a rapid decline in the stock price by the readers rushing to sell their shares. They expect that this will create a lower entry point for them to buy the stock in the near future and they will profit once their biased and misrepresented article is rebutted. Some other investors will also short the stock before they post their negative article, profiting both by the initial decline of the stock price and its subsequent near-future rise by regaining its possession at a lower price.
Who founded seeking alpha?
Seeking Alpha was founded in 2004 by former Wall Street analyst David Jackson.
When did Yahoo Finance end its relationship with Seeking Alpha?
Finance, MarketWatch, NASDAQ and TheStreet, although Yahoo Finance ended its relationship with Seeking Alpha on July 28, 2014. As of January 2021, the firm had 10 million registered users and attracts over 17 million unique viewers every month. Seeking Alpha's average visit duration is 4x more than The Economist, Barron's or the Wall Street Journal.
How many investors have subscribed to seeking alpha premium?
In the Dec. 31, 2020 announcement, David Jackson, founder and CEO, and Daniel Hochman, vice president of product, wrote that "more than 70,000+ investors have already subscribed to Premium and have unlimited access to all that Seeking Alpha Premium has to offer.".
What Is the Consensus Price Target?
The consensus price target is the average of analysts' individual price targets. This is the price target that investors will most often see quoted in the financial press.
How to Interpret a Stock Price Target
Investors and traders typically interpret a stock price target as a forecast for a future price for the respective stock. For example, if an analyst sets a target price that is higher than the current price, an investor may infer that the analyst expects the stock price to rise in the future.
How Price Targets are Calculated
Different analysts may derive their price targets through different methods. One of the simplest price target formulas to understand is the use of a Price-to-Earnings (or P/E) multiple. The analyst will project Earnings Per Share (EPS) and then multiply that number by a P/E multiple. The result of this calculation will be a price target.
Understanding EPS Estimates
Just like price targets themselves, analysts can use various methods for projecting a company's EPS. Many analysts will typically first look at where earnings have been historically, and then assess the company's growth prospects.
Pros and Cons of Using Price Targets
As is the case with many tools used to analyze investments, price targets can be useful but they also have their drawbacks. For this reason, it's wise for investors and traders to know the pros and cons of using price targets.
Pros and Cons of Price Targets
Data-driven: Analyst price targets are usually data driven, based on carefully constructed forecasts and valuation multiples.
What Is Alpha?
Understanding Alpha
- Alpha is one of five popular technical investment risk ratios. The others are beta, standard deviation, R-squared, and the Sharpe ratio. These are all statistical measurements used in modern portfolio theory(MPT). All of these indicators are intended to help investors determine the risk-return profile of an investment. Active portfolio managers seek to generate alpha in diversified p…
Seeking Investment Alpha
- Alpha is commonly used to rank active mutual funds as well as all other types of investments. It is often represented as a single number (like +3.0 or -5.0), and this typically refers to a percentage measuring how the portfolio or fund performed compared to the referenced benchmark index (i.e., 3% better or 5% worse). Deeper analysis of alpha may also include "Jensen’s alpha." Jensen’s alp…
Examples
- This is illustrated in the following two historical examples for a fixed income ETFand an equity ETF: The iShares Convertible Bond ETF (ICVT) is a fixed income investment with low risk. It tracks a customized index called the Bloomberg U.S. Convertible Cash Pay Bond > $250MM Index. The 3-year standard deviation was 18.94%, as of Feb. 28, 2022. The year-to-date return, as of Feb. 2…
Alpha Considerations
- While alpha has been called the “holy grail” of investing, and as such, receives a lot of attention from investors and advisors alike, there are a couple of important considerations that one should take into account when using alpha. 1. A basic calculation of alpha subtracts the total return of an investment from a comparable benchmark in its asset category. This alpha calculation is primar…