Alpha
Alpha is a measure of the active return on an investment, the performance of that investment compared to the S&P500 index, where 0.01 = 1%
- alpha < 0: the investment has earned too little for its risk (or, was too risky for the return)
- alpha = 0: the investment has earned a return adequate for the risk taken
- alpha > 0: the investment has a return in excess of the reward for the assumed risk
study(title="Alpha", shorttitle="Alpha") ////SHOULD BE USED TOGETHER WITH "Beta" INDICATOR //Alpha is a measure of the active return on an investment, the performance of that investment compared to a suitable market index, where 0.01 = 1% //alpha < 0: the investment has earned too little for its risk (or, was too risky for the return) //alpha = 0: the investment has earned a return adequate for the risk taken //alpha > 0: the investment has a return in excess of the reward for the assumed risk //Beta Calculation sym = "SPX500", res=period, src = close, length = input(title="rolling beta window",defval=300, minval=1) ovr = security(sym, res, src) ret = ((close - close[1])/close) retb = ((ovr - ovr[1])/ovr) secd = stdev(ret, length), mktd = stdev(retb, length) Beta = correlation(ret, retb, length) * secd / mktd //Alpha Calculation y = input(title="alpha period", type=integer, defval=90, minval=1, maxval=1000) ret2 = ((close - close[y])/close) retb2 = ((ovr - ovr[y])/ovr) alpha = ret2 - retb2*Beta plot(alpha, color=green, style=area, transp=40)