CandleFocus

Weighted Alpha

Candlefocus Editor
Weighted Alpha is a powerful tool for investors that allows them to measure the performance of a security over a certain period, usually one year, with more emphasis placed on recent activity. A weighted alpha score is a reflection of how well a security has performed relative to a benchmark, such as a major stock market index like the S&P 500. A positive weighted alpha indicates that the security has produced a return greater than the benchmark and a negative weighted alpha indicates the converse.

Weighted alpha is most often used in technical analysis to identify stocks that have experienced a strong trend over the past year, so investors can identify the stocks with the most momentum. Moreover, investors can compare stocks in the same sector or industry to see which have performed the best.

In addition to being a useful measure of performance, weighted alpha is also a useful tool for identifying stocks that are outperforming the market and building momentum. By focusing on stocks with positive weighted alpha scores and high momentum, investors can maximize their profits and minimize their risk.

Weighted alpha can also help investors identify stocks that have recently become unpopular and may be undervalued. If a stock has a high negative weighted alpha score, this may indicate that the stock is in the process of becoming undervalued and is a potential value-play.

Overall, weighted alpha is a great tool for investors looking to identify stocks that are outperforming the market and building momentum. It can also be used to identify stocks that are undervalued and may be prime candidates for long-term investments. Although weighted alpha can be used to identify stocks with strong return potential, it's important to remember that there is no guarantee of future performance.

Glossary Index