Weighted Alpha

Weighted Alpha

Alpha is a weighted measure of how much a stock has risen or fallen over a certain period, usually one year. By weighting it we put more weight to recent activity and less weight on earlier movement. This helps to give a return figure that has a greater focus on the most current period and is more relevant of a measure for short-term analysis. This technique is popular with technical analysts.

Notes:

If the stock was up over the period, then it will have a positively weighted alpha. An unchanged stock price has a small weighted alpha, and a stock whose price has fallen over the period will have a negatively weighted alpha.

See also: Alpha, Return, Stock, Technical Analysis