Traders Log » Quantitative Definitions

Alpha Equation

September 28, 2009, 9:29 am

The alpha equation of a fund is as follows: [ (sum of y) -((b)(sum of x)) ] / n where: n =number of observations (36-60 months) b = beta of the fund x = rate of return for the S&P 500, or another...

View Article

Sharpe Ratio is a risk adjusted measure of a fund’s market performance. It measures a fund’s average historical return per unit of risk. The higher the number the better the fund has performed. This...

View Article

Linear/Arithmetic Scaling

September 28, 2009, 9:47 am

On a linear or arithmetic scale chart, the spacing between each point on the vertical axis is equal. The scale is not averaged out to give more weight to the lower prices as with Logarithmic/Percentage...

View Article

Beta Coefficient

September 28, 2009, 10:02 am

The Beta Coefficient in terms of finance and investing is a measure of the systematic risk of a stock or portfolio. It quantifies relative volatility in relation to the overall market, which is defined...

View Article

Monte Carlo Simulation

September 28, 2009, 10:23 am

A method used to estimate a probable outcome using multiple simulations with random variables. In the context of finance, Monte Carlo Simulation is used to forecast the probabilities of different...

View Article

Game Theory

September 28, 2009, 10:33 am

Game theory is an area of applied mathematics and economics examining how entities behave in strategic situations where participants choose different actions in order to achieve the best results. Game...

View Article

Capital Asset Pricing Model – CAPM

September 28, 2009, 10:37 am

The Capital Asset Pricing Model expresses the level of return an investor can expect relative to the amount of risk being assumed. The CAPM formula takes into account the time for which an investment...

View Article