Unknown Indicator

Total Risk Alpha In A Nutshell

Total risk alpha measures the performance of an asset while comparing it to the benchmark. Now, there are two pieces to this, and they are total risk and alpha. Alpha is the return generated from an investment and should be monitored closely. 

 

If you take a look at any mutual fund, odds are you will see that it is being compared to a benchmark in the industry. For example, the S&P mutual funds are compared with the S&P 500 as the benchmark.

Closer Look at Total Risk Alpha

Alpha is one of the first items many people ask when they are searching for an investment. It is important to understand the historical return over a period of time. Typically people invest in funds for quite some time, so they may be looking at the returns generated over a 3, 5, or 10 year period.

Then there is total risk, which is self explanatory. Total risk is how much you are risking for the potential returns of your investment. Risk needs to be kept in line because you can lessen certain risks such as company specific risk and duration risk. If you need help, an investing professional can certainly define these and help apply them to your current situation.

Now, total risk alpha compares the investment against the benchmark and it is important for you to understand what makes up the benchmark as well as the risk levels associated. This is a way to compare what you may invest in because sometimes the benchmark may be the better investment. Now each sector of the market will have its own unique risks and profile because the financial sector will be exposed to risks the food industry may not be exposed too.

Understanding risk and comparison against benchmarks is crucial and will hopefully give you clarity in your investing plans. Benchmarks are typically used with many products over different institutions, but be sure the benchmark is reputable. If you still are unsure, reach out to an investing community and bounce your questions off of them. Knowing what your investment is being compared against is crucial because you want to know your fund is accurately being managed and taken care of.

Generate Optimal Portfolios

The classical approach to portfolio optimization is known as Modern Portfolio Theory (MPT). It involves categorizing the investment universe based on risk (standard deviation) and return, and then choosing the mix of investments that achieves the desired risk-versus-return tradeoff. Portfolio optimization can also be thought of as a risk-management strategy as every type of equity has a distinct return and risk characteristics as well as different systemic risks, which describes how they respond to the market at large. Macroaxis enables investors to optimize portfolios that have a mix of equities (such as stocks, funds, or ETFs) and cryptocurrencies (such as Bitcoin, Ethereum or Monero)
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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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