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What is Unlevered Beta?

What is Unlevered Beta?

Unlevered beta measures the Beta (a volatility indicator that denotes how closely an investment follows movements in the market as a whole) of a company when the effects of debt (leverage) are removed, allowing investors to gauge risk strictly as a function of company assets. The beta of a company’s equity stock is a measure of volatility relative to the rest of the market, impacting Price-to-Earnings (P/E) calculations and other valuations. When beta increases, the cost of equity increases, and results in a higher P/E. Unlevering the beta can give a clearer picture of the market risk of a company’s equity shares, as higher debt relative to equity usually constitutes more risk to investors. Continue reading...

What is beta in investing?

What is beta in investing?

Beta is a volatility indicator that denotes how closely an investment follows movements in the market as a whole; when examining mutual funds, it indicates how similarly the funds move to their relevant indexes. It is often referenced with its counterpart, Alpha; a risk ratio which measures gains or losses relative to a benchmark, indicating whether an investor is being compensated with a return greater than the volatility risk being taken. Continue reading...

What is R-Squared?

What is R-Squared?

R-squared is a statistical tool called a correlation coefficient. It is a percentage measurement that represents how closely correlated a security’s movement is with the movements of a benchmark index. Values range between 0 and 1 and are often expressed as percentages between 0% and 100%. A higher R-squared (between 85% and 100%) tells investors that a security moves more or less in correlation with the benchmark index. A lower R-squared (70% or less) means that the security in question moves independently from the index. Continue reading...

What is alpha in investing?

What is alpha in investing?

Alpha is a risk ratio which measures gains or losses relative to a benchmark, indicating whether an investor is being compensated with a return greater than the volatility risk being taken. Alpha’s counterpart, the Beta figure, measures how closely an investment follows movements in the market as a whole or, when examining mutual funds, how similarly the funds move to their relevant indexes. Alpha is expressed as integers, which can be translated into percentage points above or below a benchmark for a time period. Investors are interested in higher Alpha figures: the larger the positive Alpha, the more the fund in question has outperformed its benchmark. An Alpha of 2 indicates a performance 2% greater than its benchmark; inversely, a -2 Alpha would denote 2% underperformance. Continue reading...

What is Volatility?

Volatility is a measure of the variance, deviation, or movement of a stock. Volatility is all the extra movement of a stock or other security over and above (and below) a line of averages. Put another way, it is a measure of how many changes in price, and by how much, a security experiences over an amount of time. Computations of Standard Deviation and Variance are measures of the degree of volatility which exists in the movement of a stock. Volatility will also be measured relative to a benchmark index, and the degree to which a security adheres or deviates from the benchmark is called Beta. People will also trade on derivatives of the VIX, which is the volatility index of the S&P 500. Continue reading...

What is Systematic Risk?

Systematic risk is the broad risk of fluctuations and downturns in the market as a whole, which it is said cannot be eliminated through diversification. Systematic risk is also known as market risk, which is the exposure of all investors to the broad movements and downturns of the market as a whole. Theoretically it cannot be controlled for through simple diversification, since that would only bring a portfolio closer to the broad market performance, with a Beta closer to 1. Continue reading...

What is the security market line?

What is the security market line?

The Security Market Line (SML) is a visualization of the Capital Asset Pricing Model (CAPM) and shows the theoretical relationship between risk and return between securities and the entire market. The SML is plotted on a graph bound by an x-axis, which represents Beta (volatility above or below the market average), and a y-axis, which represents the rate of return. Beta is a volatility indicator that measures how many changes in price, and by how much, a security experiences over an amount of time. It describes whether the risk associated with a particular security is above or below the average of the market (or a more specific index), where 1 is a correlation with the market, and numbers above or below describe increased or decreased volatility, respectively. Continue reading...

What is Risk?

What is Risk?

Risk can be defined as exposure to the possibility of loss of an asset. Risk might be used to denote the cause of the potential loss, or the probability of the loss. In finance, it is common to hear about the correlation between risk and return; more risk may yield a higher return, but it also has the potential for more loss. The situation requires that an investor willing to take such a risk must provide the capital to fund the investment which may grow or may fail. Continue reading...

What does delta mean?

What does delta mean?

Delta is a ratio which measures the degree of correlation between changes in price for the underlying security and changes in the price of the option. Put another way, Delta indicates the amount of price change in a derivative by comparing changes between asset and derivative prices. Delta is a multiple that applies to options positions; it, along with Gamma, Theta, and Vega, helps options investors calculate risk and potential return for an investment. Delta can quickly tell an options investor how much the price of their option will change per share relative to the price change in the underlying security. Delta is represented by a number between 1 and -1, with a negative Delta value sometimes written in accounting notation, like: (1). Continue reading...

What is active trading?

What is active trading?

Active trading is the pursuit of returns in excess of market benchmarks. Investors are advised to have a diverse portfolio, to hedge against the risk of seeing future financial plans devastated due to significant losses in one holding. When attempting to diversify, investors will hear from the increasingly popular camp which believes that the best strategy is to use only passive index funds, which follow indexes using computer algorithms and have low expense ratios. Continue reading...

What is active management?

What is active management?

Active management is the practice of attempting to outperform the market with selection and timing. Active management is a thoughtful and time-consuming approach to investing and is the opposite of Passive management. Active managers seek to outperform the benchmarks for their portfolio by researching and selecting stocks and other assets based on strategies and analysis methods thought to be superior. Continue reading...

What is Unsystematic Risk?

Unsystematic risk is idiosyncratic or unique risk that does not reflect a direct correlation with the risk present in the market, or systematic risk. Most securities and portfolios experience risk and variations which are not attributable to the market as a whole, and this is known as unsystematic risk. Systematic risk, on the other hand, is the risk borne by all investors in the market, where broad changes in the market cannot be avoided through diversification of a portfolio. Continue reading...

What does "Beta" signify in the context of assessing a stock's risk?

Unlock the secrets of stock risk assessment with Beta! Discover how this crucial measure gauges a stock's volatility compared to the market. Learn its calculation, interpretations, and real-world examples to make informed investment decisions. #Stocks #InvestmentRisk #Finance Continue reading...

How Do We Understand Beta as the Measure of Market Volatility?

How Do We Understand Beta as the Measure of Market Volatility?

Ever wondered how to gauge a stock's volatility relative to the overall market? Dive into the world of 'Beta' – a key metric in finance that shapes investment strategies and helps investors understand market risks. Discover its significance in today's financial landscape Continue reading...

What is a market neutral fund?

What is a market neutral fund?

Market neutral funds might be hedge funds or mutual funds or ETFs whose strategy is not based on bullish or bearish market predictions but instead seeks to be in a position to profit whether the market goes up or down. Most mutual funds and ETFs out there are inherently bullish — you invest in those funds because you believe or hope that the industry or geographic region or cap-size that they invest in will grow in the future. Some funds offer bears a place to hole-up when the bubble inevitably bursts (or so they think). Continue reading...

Best Internet Stock to Buy: Navigating the Digital Giants

Tap into the pulse of the digital revolution with our expert financial analysis on the best internet stocks to buy now. From Alphabet's sprawling empire to Meta's social dominion and the rising stars of tech, find out where the smart money is headed in the internet software sector. Continue reading...

What is market efficiency?

What is market efficiency?

Market efficiency describes the degree to which relevant information is integrated into the price of a security. With the prevalence of information technology today, markets are considered highly efficient; most investors have access to the same information with prices and industry news, updated instantaneously. The Efficient Market Hypothesis stems from this idea. Efficient markets are said to have all relevant information priced-in to the securities almost immediately. High trading volume also makes a market more efficient, as there is a high degree of liquidity for buyers and sellers, and the spread between bid and ask prices narrows. Continue reading...

What Is the UltraPro Short QQQ (SQQQ) ETF?

What Is the UltraPro Short QQQ (SQQQ) ETF?

In the world of Exchange-Traded Funds (ETFs), where investors have access to a wide array of investment strategies, the ProShares UltraPro Short QQQ ETF (SQQQ) stands out as a unique and intriguing option. Launched in February 2010 by ProShares, this inverse-leveraged ETF has garnered attention for its focus on delivering results that move inversely to the Nasdaq 100 Index. In this article, we will delve into the details of SQQQ, examining what it is, how it operates, its performance, advantages, disadvantages, and the best use cases for this specialized investment vehicle. Continue reading...

Is Buying High and Selling Low with Relative Strength a Viable Strategy?

Whether you have $1,000 or you manage billions, the relative strength (RS) technique is a popular and useful tool for comparing one investment against the overall market. But few individuals ever manage to use the technique effectively because they fail to incorporate RS into a comprehensive trading strategy. In this article, we'll define relative strength, explain why it works, and demonstrate how individual investors can employ RS strategies. This versatile tool can be applied to stocks, exchange-traded funds (ETFs), and mutual funds. Continue reading...

How Do Odds Work in Betting?

If you're stepping into the world of betting, whether it's at a casino, in sports, or anywhere else, understanding odds is crucial. Smart betting requires a solid grasp of the main betting odds types and the ability to interpret their different formats. In this article, we'll explore the three primary betting odds formats: British (fractional), European (decimal), and American (money line). Continue reading...