Basic Stock Market & Risk Terms

Alpha

Extra return above the market.

Beta

How much a stock moves compared to the market.

Smart Beta

Picking stocks using special factors instead of company size.

Risk-Free Rate

Return from a very safe investment.

Systemic Risk

Risk that affects the whole market.

Idiosyncratic Risk

Risk tied to one company.

Standard Deviation

How much prices move up and down.

Correlation

How closely two investments move together.

Covariance

Whether two investments move together or apart.

Diversification

Spreading money across investments to lower risk.

Sharpe Ratio

Return compared to risk taken.

Upside Participation

How much an investment rises with the market.

Downside Participation

How much an investment falls with the market.

Maximum Drawdown

The biggest drop in value before recovery.

Benchmark

A standard used to compare performance.

Leverage

Using borrowed money to invest.

Hedging

Reducing investment risk.

Annualized Rate

Return shown as a yearly rate.

YTD

Performance since the start of the year.

Equity Risk Premium

Extra return expected from stocks over safe investments.