beta coefficient
Beta coefficient (β coefficient) is a kind of risk coefficient, which is used to measure the price fluctuation of individual stocks or stock funds relative to the whole stock market. The greater the absolute value of beta coefficient, the greater the change range of income relative to the market. If it is negative, it means that the direction of change is opposite to the market. When the market rises, it will fall, and when the market falls, it will rise.
α coefficient
Alpha coefficient is the difference between the excess return of the fund and the expected return calculated according to beta coefficient. Alpha coefficient is an important index to reflect the return on investment. Simply put, the greater the alpha coefficient, the greater the ability of the fund to obtain excess returns.
For example, when a person walks on a train, his actual speed is equal to the speed he walks on the train plus the speed of the train. The speed of the train is equivalent to β, which is the basic speed, and the speed of his walking is equivalent to α.
How to use these two indicators?
No matter what kind of market, the bigger the alpha coefficient, the better. Alpha coefficient can reflect the fund manager's stock selection ability and the fund's excess return ability. If the same is true in long-term investment, the higher the alpha coefficient is preferred.
Beta coefficient follows the market situation, which means that a rising tide lifts all boats. If you judge that the market is in the bottom range, you can choose funds with higher beta coefficient, because once the market trend turns upward, such funds will rise faster, while if the market is in the high range, you can choose funds with lower beta coefficient, and if the market suddenly falls, such funds will have stronger resilience.