alpha coefficient

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A measure of the return on a share compared to the expected return on shares with a similar beta coefficient. It identifies the specific risk associated with a particular share as opposed to the systematic risk associated with securities of the same class. Sometimes referred to as Treynor's alpha, it is formally calculated as:

Ri – Rf – βi[E(Rm) – Rf],

where Ri = the returns on the asset under consideration, Rf is the risk free return, E(Rm) is the average or expected returns on a market portfolio, and βi is the beta of the asset or portfolio i.

Subjects: Financial Institutions and Services.

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