Working With Alpha, Beta, Correlation, and R²

RELATED CONTENT

Know Your Stats—The Basics for Advisors

Modern portfolio theory is filled with statistical references that can help you make better investment decisions. Here's how to make sense of the concepts behind the jargon.

How Correlations Change

Still plugging the same old correlation coefficient into your portfolio optimizer? If so, you're ignoring the fact that correlations move—especially among fixed-income and non-U.S. equity indexes. This chart illustrates how much they've changed over the past 20 years.

Distilling Alpha From Beta to Enhance Portfolio Returns

If you're looking to implement absolute return strategies, your first step should be to separate alpha from beta. It's then easier to minimize market risk and enhance return using portable alpha or long/short strategies.

Understanding How to Port Alpha

Given renewed concerns about the falling equity premium, managers are devising new strategies that could gain clients bonus return over a long-only portfolio. This overview explains some of the strategies and issues underlying "portable alpha."