Explain alpha and beta in Capital Asset Pricing Model
Explain the purpose of alpha and beta in Capital Asset Pricing Model.
Expert
The parameters alpha and beta are also commonly termed as in the hedge-fund world. Performance reports for trading strategies will frequently quote the alpha and beta of the strategy. This good strategy will have a high, positive alpha along with a beta close to zero. With beta being small you would suppose performance to be unrelated to the market as a complete and with large, positive alpha you would expect good returns either way the market was moving. The meaning of small beta a strategy should be a valuable addition to a portfolio due to its beneficial diversification.
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