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Identify three ways to estimate or measure the coefficient A for a real investor.

Identify three ways to estimate or measure the coefficient A for a real investor.

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Answer : The three ways to estimate or measure the coefficient A for a real investor are as follows:

1. Alpha :

  • It measures the risk relative to the market.
  • To choose any fund it must have positive alpha.
  • If any fund has negative alpha this means it is running below the standard and should be rejected.

2. Beta :

  • Beta measures a volatility of a fund in comparison to a market.
  • Beta below 1 are considered less volatile than the benchmark.
  • This risk is also called systematic risk.

3. Standard Deviation :

  • Standard Deviation measures data dispersion in regards to the mean value of the data set.
  • It provides an measurement regarding an investment volatility.
  • It describes how much an investment is deviated from average returns.
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