Alpha Theory introduces risk-adjusted return calculator

Source: Alpha Theory

Alpha Theory recently introduced the first ever calculator that produces an Estimated Risk Adjusted Return for any individual asset.

This value lays the groundwork for every important portfolio decision an investment firm will make. The Risk-Adjusted Return calculation is the most effective way to measure investment quality. All research can be distilled down into the elements of potential profit, downside risk, and probability of each coming true. The use of Risk-Adjusted Return in portfolio construction reduces risk by decreasing position size when an asset has greater downside and increasing return by maximizing the portfolio's overall Risk-Adjusted Return.

The Alpha Theory Risk-Adjusted Return (RAR) calculator can be found at Begin by entering a stock ticker, the calculator provides an Estimated Risk-Adjusted Return using market metrics that you can use to show if the market-bias is positive or negative. This Estimated RAR starts by deriving price targets using an average of 52-week high and low and 1-year annualized volatility implied prices. Then, the Calculator derives probabilities by averaging the option-market implied and normal distribution implied probabilities of the price targets being achieved (for more detail on these calculations click on the Calculator Instructions at The Alpha Theory Estimated RAR is a great first step in any investment process.

The next step is to customize with your own research. Alpha Theory allows you to override the estimates with your own assumptions to truly appreciate the stock's impact on your portfolio. Risk-Adjusted Return is the foundation of every investment decision and is imperative in ensuring that an asset's position size is in-line with your fundamental research.

"Calculating Risk-Adjusted Return is the most important step a firm can take to improve their investment process," says Cameron Hight, President and CEO of Alpha Theory. "The hard part is getting started and the Alpha Theory Calculator makes it much easier by providing the foundation of our ground--breaking application to the entire investment community."

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