"Beta" is a measure of the extent to which a particular security "participates" in a 1% movement in the market. A stock or mutual fund with a beta of 1.0 can be expected to gain 1% in response to a 1% market advance, on average, and to lose 1% in response to a 1% market decline, on average. Though a few stocks, such as precious metals shares, often have a slightly negative beta, several "bear funds" are available that take significant short positions in the market, and establish negative betas. These funds can be expected to predictably and continually gain as the market declines, and to predictably and continually lose as the market advances.
In contrast, "Alpha" is a measure of the extent to which a particular security advances, on average, independent of market movements. Alpha is not driven by fluctuations in the market, but "accrues" slowly over time. For example, suppose that the Strategic Growth Fund is fully hedged and has a beta of zero. In order to achieve a 15% total return over a period of a year, the Fund would have to achieve an average daily alpha amounting to slightly under a penny per day in NAV. It is important to understand that alpha does not accrue in response to a given day's market action. That's beta. It is not riskless. That's Treasury bill interest. Alpha involves at least some amount of risk (for us, it is the "basis risk" that our stocks could lag the market rather than outperform), it accrues almost unobservably on a day-to-day basis.
No comments:
Post a Comment