What is a good alpha number?

A positive alpha of 1.0 means the fund or stock has outperformed its benchmark index by 1 percent. A similar negative alpha of 1.0 would indicate an underperformance of 1 percent. A beta of less than 1 means that the security will be less volatile than the market.

What is a good alpha ratio?

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 is a reasonable alpha?

The alpha value, or the threshold for statistical significance, is arbitrary – which value you use depends on your field of study. In most cases, researchers use an alpha of 0.05, which means that there is a less than 5\% chance that the data being tested could have occurred under the null hypothesis.

What is a positive alpha?

What Is Alpha? A positive alpha indicates the security is outperforming the market. Conversely, a negative alpha indicates the security fails to generate returns at the same rate as the broader sector. So, according to this definition, a stock with a negative alpha is underperforming.

Is a higher beta better?

What Is Beta? Beta is a measure of a stock’s volatility in relation to the overall market. High-beta stocks are supposed to be riskier but provide higher return potential; low-beta stocks pose less risk but also lower returns.

What is a good beta ratio?

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. Beta is probably a better indicator of short-term rather than long-term risk.

How do you know if Alpha is significant?

To say that a result is statistically significant at the level alpha just means that the p-value is less than alpha. For instance, for a value of alpha = 0.05, if the p-value is greater than 0.05, then we fail to reject the null hypothesis.

What does an alpha of 0.05 mean?

The significance level, also denoted as alpha or α, is the probability of rejecting the null hypothesis when it is true. For example, a significance level of 0.05 indicates a 5\% risk of concluding that a difference exists when there is no actual difference.

Is a negative alpha good or bad?

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.

What is considered high beta?

A high-beta stock, quite simply, is a stock that has been much more volatile than the index it’s being measured against. A stock with a beta above 2 — meaning that the stock will typically move twice as much as the market does — is generally considered a high-beta stock.

What is the alpha of a portfolio?

Alpha refers to excess returns earned on an investment above the benchmark return. Active portfolio managers seek to generate alpha in diversified portfolios, with diversification intended to eliminate unsystematic risk.