Quantitative Analysis

Alpha is a term used to refer to how much an investment outperforms the broader market. It is represented by the greek letter of the same name, α, in equations.

Beta is the term used to refer to the relative volatility of an investment versus that of the market as a whole. This can be used as a tool to measure the risk-adjusted return of the investment and is represented by the greek letter of the same name, β, in equations.

The Sharpe Ratio is a method for measuring the risk-adjusted return of an investment. It does this by comparing the investment to the risk-free rate of return over a certain time period.

Invented by Harry Markowitz and first published in 1952, MPT is one of the first quantitative analysis frameworks. MPT was made to help an investor choose investments that will match their risk tolerance.

Quantitative analysis broadly refers to using mathematical models and measurements to understand various topics. In investing it refers more specifically to a method of investment analysis that focuses on using mathematical and statistical models.

The Fama and French Three Factor Model, often referred to as just the Fama and French Model, is an expanded version of the CAPM model. Instead of just looking at the systematic risk of a portfolio, it adds size and value premiums as additional variables to the model.

The Treynor Ratio is a method for measuring the risk-adjusted return of an investment. It does this by measuring an investment’s risk and return against that of the broader market.