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Covestor Radio – Episode 12: Alpha vs. Beta

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Posted: June 9, 2014 at 9:53 am   /   by   /   comments (0)

Covestor

Kimberly Clouse, Covestor’s Chief Client Advocate and Advisory Board Chair joins Covestor Radio to talk about investing and specifically, alpha and beta.

Covestor Radio is a show about money milestones and investing for your future and brought to you by Covestor, an online marketplace for investing.

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Listen to host Eric Dye & guest Kimberly Clouse discuss the following:

  • In prior Covestor Radio Shows, we have discussed risk. How do Alpha and Beta fit in?
  • What does Beta tell an investor?
  • What does Alpha tell an investor?
  • How are these concepts applied in evaluating investments?

TIP: Alpha is used to measure performance on a risk adjusted basis. As an investor we want to know if we are being compensated for the risk taken. The return of investment might be better than a benchmark but still not compensate for the assumption of the risk.

By risk adjusted we mean an investment return should compensate for Beta (volatility). If an investment is twice as volatile as the benchmark an investor should receive twice the return for assuming the additional risk. If an investment is less volatile than the benchmark an investor could receive less return than the benchmark and still be fairly compensated for the amount of risk taken.

Beta is a historical measure of volatility. Beta measures how an asset (i.e. a stock, an ETF, or portfolio) moves versus a benchmark (i.e. an index).

Alpha is a historical measure of an asset’s return on investment compared to the risk adjusted expected return.

Historical data does not guarantee future returns.

About Kimberly Clouse

Kimberly Clouse is Advisory Board Chair at Covestor, a registered investment adviser and an online marketplace for investing.

Passionate about empowering financial consumers, Kimberly works with individuals, families and foundations to help them navigate the increasingly complex world of investment advice and make more informed financial decisions.

She previously served as Managing Director at Athena Capital Advisors and Chief Executive Officer at Hale and Dorr Wealth Advisors. Earlier in her career, she worked for United States Trust Company, J.P. Morgan and Goldman Sachs.

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Links: Covestor.com

Note: All opinions included in this radio episode are as of [June 9, 2014] and are subject to change. The opinions and views expressed herein are of Kimberly Clouse. All investments involve risk, the amount of which may vary significantly.

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