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Strategies & Market Trends : The 56 Point TA; Charts With an Attitude -- Ignore unavailable to you. Want to Upgrade?

To: Densiebj who wrote (36398)	8/1/2000 11:22:24 PM
From: Alski	Read Replies (1) \| Respond to of 79392

D, I've seen alpha used wrt mutual funds in Morningstar reports. Don't know if it's the same alpha you're asking about but: Alpha vs. Standard Index Alpha measures the difference between a fund's actual returns and its expected performance, given its level of risk (as measured by beta). A positive alpha figure indicates the fund has performed better than its beta would predict. In contrast, a negative alpha indicates a fund has underperformed, given the expectations established by the fund's beta. Some investors see alpha as a measurement of the value added or subtracted by a fund's manager. There are limitations to alpha's ability to accurately depict a manager's added or subtracted value. In some cases, a negative alpha can result from the expenses that are present in the fund figures but are not present in the figures of the comparison index. Alpha is dependent on the accuracy of beta: If the investor accepts beta as a conclusive definition of risk, a positive alpha would be a conclusive indicator of good fund performance. Of course, the value of beta is dependent on another statistic, known as R-squared. (Alpha, beta, and R-squared statistics are all provided on Morningstar.com.) For Alpha vs. the Standard Index, Morningstar performs its calculations using the S&P 500 as the benchmark index for equity funds and the Lehman Brothers Aggregate as the benchmark index for bond funds. Morningstar deducts the current return of the 90-day T-bill from the total return of both the fund and the benchmark index. The difference is called the fund's excess return. The exact mathematical definition of alpha that Morningstar uses is listed below. Alpha = Excess Return - ((Beta x (Benchmark - Treasury)) Benchmark = Total Return of Benchmark Index Treasury = Return on Three-month Treasury Bill FWIW...Alski