Finance Assessment Essay Example | Topics and Well Written Essays - 3250 words

Finance Assessment - rise ExampleIn this concept adept stocks performance is benchmarked by the performance of another stock. The returns which testament be generated ar compargond relatively to other stocks of similar nature operating in the marts (Gitman, 2003). The major difference amidst both the absolute and relative return is that absolute return is concerned about the returns which argon generated from one particular asset or stock, whereas in relative return the stock is compared or benchmarked with the mensurations of other stocks. The virtually debated concept of Security Analysis and Portfolio Management is about the understanding whether a portfolio has been properly analyzed for the returns which the investors will get or understanding the relative performance of that particular stock in the markets (Deloitte, 2010). The investors need to define the definition of hazard, how it is measured and how to deal with it and for this reason investors create a portfolio of different stocks and securities. important and beta are the tools used by the investors to rate their portfolios and measure whether or not their investments are generating the pass judgment returns considering the risk they are taking. Assessing a portfolio in terms of both Alpha and Beta, the investor will have more control oer the portfolio and he will maximize the returns by minimizing risk (Koba, 2012). The measurement of an investment on risk correct basis is called Alpha. Investors seek to minimize risk and increase returns (Loth, 2007). The stock prices are subject to volatility. The price risk associated to a portfolio determines the return expected by the investor. The additional return which an investor gets on a portfolio apart from the benchmark set is called Alpha. A negative Alpha of a portfolio shows underperformance (Faulkenberry, n.d.). Beta is a tool which is used to measure the volatility of risk associated to a portfolio as compared to the performance o f the market. Regression analysis is used to calculate Beta. In other terms Beta is the propensity of investment return to respond to the market volatility. The lower the observe of Beta, lesser will be the volatility of the stock with respect to the market. Both Alpha and Beta are popular tools used for the measurement of volatility. Alpha compares the asset returns on the investment to the risk adjusted expected returns whereas Beta is the movement of the asset along with the benchmark that has been set by the market. Alpha is very most-valuable for assessing the growth and the returns that are associated to the portfolio. It depends on the structure of the portfolio, the investor and the market which is being analyzed that which factor either the Beta or the Alpha will be critically significant for the investor (Seeking Alpha, 2011). With the varying school of thoughts the perceptions of the importance of Alpha or Beta vary. Alpha and Beta alone do not possess the potential to assess the risk instantly and adjust the portfolio for the returns. Alpha alone is not sufficient to assess the skills which are derived from the leverage of the portfolio. It is not suitable for a risk averse investor and may end up being a misleading performance measure for the investors. The value of Alpha itself is not sufficient for the assessment of the stock just now it can be used if a benchmark of the portfolio is set. Beta does not possess this benefit. The direction of the market cannot be assessed by the benchmark Beta set for the portfolio. The use of Alpha and the speculations made by victimization it are very consistent. The