[icopyright horizontal toolbar]
In our previous blog, we discussed the concept of beta as it applies to the risk and return of an investment. Recall that beta is the price movement in an individual investment that can be accounted for by the price movement of the general market. If your investment has a beta of 1.0 and the market returns 10%, your investment should also return 10%. If your investment returns over 10%, the excess return is called alpha. Alpha is derived from a in the formula Ri = a + bRm which measures the return on a security (Ri) for a given return on the market (Rm) where b is beta.Click here for reuse options!
Copyright 2010 Eric Bank, Freelance Writer