Results for “Beta”
11 terms
Beta
Risk & Portfolio Management
ratio (x, times)
A measure of how much an asset's return moves relative to the market's, on average.
Beta = Covariance of Asset and Market Returns / Variance of Market Returns
Smart Beta
Funds, ETFs & Index Investing
qualitative
A rules-based index strategy that weights constituents by a chosen factor rather than by market capitalisation.
Test: constituent weights are determined by a published rule based on a factor such as value, quality, momentum, low volatility or equal weight
Treynor Ratio
Risk & Portfolio Management
ratio (x, times)
Return above the risk-free rate per unit of systematic risk, measured by beta.
Treynor Ratio = (Portfolio Return - Risk-Free Rate) / Portfolio Beta
Capital Asset Pricing Model
Fundamental Analysis & Valuation
%
A model that estimates the return required on an asset as the risk-free rate plus a premium proportional to its market risk.
Expected Return = Risk-Free Rate + Beta x (Expected Market Return - Risk-Free Rate)
Defensive Stock
Market Basics & Instruments
qualitative
A share whose earnings hold up through downturns because demand for its products barely changes with the economy.
Test: earnings show low correlation with GDP growth, typically in consumer staples, pharmaceuticals or utilities
R-Squared
Risk & Portfolio Management
%
The proportion of a portfolio's return variation that is explained by movements in its benchmark.
R-Squared = Square of the Correlation between Portfolio and Benchmark Returns, expressed as a percentage
Systematic Risk
Risk & Portfolio Management
qualitative
Risk affecting the entire market that cannot be removed by diversification.
Test: the risk arises from factors common to all assets, such as interest rates, inflation, policy or global shocks
Alpha
Risk & Portfolio Management
%
The return earned above what an asset's risk exposure would have predicted.
Alpha = Actual Return - [Risk-Free Rate + Beta x (Market Return - Risk-Free Rate)]
Cost of Equity
Fundamental Analysis & Valuation
%
The return shareholders require for bearing the risk of owning a company's shares.
Cost of Equity = Risk-Free Rate + Beta x Equity Risk Premium
Hedging
Risk & Portfolio Management
ratio (x, times)
Taking an offsetting position to reduce the loss an existing exposure would suffer from an adverse move.
Hedge Ratio = Value of Exposure x Beta / Contract Value of the Hedging Instrument
Index Futures
Derivatives, Futures & Options
₹
A futures contract whose underlying is a stock market index rather than a single security.
Contract Value = Index Level x Lot Size; settlement is in cash against the final index value