Alpha:
Alpha is a measure of value added.
Annualized Compound
(Geometric) ROR:
The annualized average return that assumes the same rate
of return every year to arrive at the equivalent compound
growth rate reflected in the performance results monthly
data.
Beta:
Beta is the slope of the regression line. Beta measures
the risk of a particular investment relative to the market
as a whole (the "market" can be any index or investment
you specify). It describes the sensitivity of the investment
to broad market movements. For example, in equities, the
stock market (the independent variable) is assigned a beta
of 1.0. An investment which has a beta of .5 will tend to
participate in broad market moves, but only half as much
as the market overall.
Correlation Coefficient
(R):
A correlation coefficient is a number between -1 and 1,
which measures the degree to which two variables are linearly
related. If there is perfect linear relationship with positive
slope between the two variables, we have a correlation coefficient
of 1; if there is positive correlation, whenever one variable
has a high (low) value, so does the other. If there is a
perfect linear relationship with negative slope between
the two variables, we have a correlation coefficient of
-1; if there is negative correlation, whenever one variable
has a high (low) value, the other has a low (high) value.
A correlation coefficient of 0 means that there is no linear
relationship between the variables.
DJIA:
Dow Jones Industrial Average, is comprised of 30 leading
companies. Calculated by adding the prices of these 30 stocks,
the Dow is now considered a figure that indicates the general
state of the market.
Drawdown:
A Drawdown is any losing period during an investment record.
It is defined as the percent retrenchment from an equity
peak to an equity valley. A Drawdown is in effect from the
time an equity retrenchment begins until a new equity high
is reached (i.e. In terms of time, a drawdown encompasses
both the period from equity peak to equity valley (Length)
and the time from the equity valley to a new equity high
(Recovery).).
Russell 2000 Index:
The Russell 2000 Index measures the performance of the 2,000
smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the
Russell 3000 Index. As of the latest reconstitution, the
average market capitalization was approximately $530 million;
the median market capitalization was approximately $410
million. The largest company in the index had an approximate
market capitalization of $1.4 billion.
S&P 500 Index:
The Standard & Poors 500 Index consists of 500 stocks
chosen for market size, liquidity, and industry group representation.
It is a market value weighted index (stock price times number
of shares outstanding), with each stock's weight in the
Index proportionate to its market value. The "500"
is one of the most widely used benchmarks of U.S. equity
performance.
S&P MidCap 400:
The S&P MidCap 400 Index consists of 400 domestic stocks
chosen for market size, liquidity, and industry group representation.
It is also a market value weighted index and was the first
benchmark of midcap stock price movement.
Sharpe Ratio:
A ratio developed by Bill Sharpe that is calculated by subtracting
the risk free rate from the rate of return for a portfolio
and dividing it by the standard deviation of the portfolio
returns. It tells us whether the returns of the portfolio
were because of smart investment decisions or by excess
risk.
Sortino Ratio:
Similar to the "Sharpe Ratio", except it uses
downside deviation for the denominator, whereas Sharpe uses
standard deviation. This ratio was developed to differentiate
between good and bad volatility in the Sharpe.
Standard Deviation:
Standard Deviation measures the dispersal or uncertainty
in a random variable (in this case, investment returns).
It measures the degree of variation of returns around the
mean (average) return. The higher the volatility of the
investment returns, the higher the standard deviation will
be. For this reason, standard deviation is often used as
a measure of investment risk.
