Modern Finance Alpha

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Alpha

Returns the annualized return beyond what the asset's beta to its benchmark explains.

Syntax

Alpha( assetReturns( ), benchmarkReturns( ), riskFreePerPeriod, frequency )

Examples

#import "std/money"
using money

'' Jensen's alpha, annualized: the excess earned beyond what the
'' portfolio's beta exposure to the benchmark would explain.
dim as float64 r( 0 to 11 ) = { 0.02, -0.01, 0.03, 0.015, -0.025, 0.04, _
                               0.01, -0.005, 0.02, 0.03, -0.015, 0.025 }
dim as float64 b( 0 to 11 ) = { 0.018, -0.012, 0.025, 0.012, -0.02, 0.035, _
                               0.008, -0.004, 0.018, 0.028, -0.012, 0.022 }

print Alpha( r( ), b( ), 0.0002, RETURN_MONTHLY ).Value( )       '' 0.0007384440443476345

'' A portfolio that IS its benchmark has no alpha, by construction --
'' zero to within floating-point residue, which is why this is a
'' tolerance rather than a comparison against exactly 0.
dim as boolean noAlpha = _
    ( abs( Alpha( b( ), b( ), 0.0002, RETURN_MONTHLY ).Value( ) ) < 1.0e-12 )
print noAlpha                            '' true

---

Library: Finance
Category: Finance
Documented under: Nothing Becomes A Keyword
Source: pkg/std/money/finport.tiko in the tiko repository.