Glossary

The residual return after accounting for return of the benchmark. May be positive or negative.

One-one hundredth of a percent or 1 Basis Point = 0.01%

The market portfolio. What real life portfolios are compared to.

A fancy word to describe market risk.

The direction and magnitude with which two assets move together. Ranges between -1 and +1.

The idea that when uncorrelated assets are put together in a portfolio an investor can earn higher risk-adjusted returns.

Measures interest rate risk in a bond.

The idea that all known knowledge is currently in a stock price.

Also known as “ETFs”. It is a basket of stocks or bonds that trades on an exchange like a stock.

A statistical technique used to measure the relation between two variables. Often times two variables are “regressed” against one another to see if there is any predictive ability.

See also: Benchmark. It is the market portfolio against which real life portfolios are measured.

The size of a company. It is its stock price times shares outstanding.

A statistical model that is build on regression analysis to uncover variables or factors that supposedly lead to out-sized returns.

A portfolio of securities managed by a professional investment company.

A simple pricing mechanism that takes a stocks price and divides it by some common demoniator. For instance, many market participants use Price-to-Earnings to judge whether or not a stock is priced correctly.

See Also: Volatility. This is the degree to which a stock price bumps around as defined by modern portfolio theory. It may also be defined as the permanent loss of capital.

The percent return an investor earns in an investment adjusted for cash in and out flows.

A technique to delay taxes in an account until withdrawal. A 401(k) or IRA is a “Tax-Deferred” savings vehicle.

Meaning that capital appreciation, dividends and interest earned in the account is not taxed, even at withdrawal.

The bouncing around of a stock price.

The income generated on an investment.