Alpha chart helps investors compare the outperformance of different symbols since 2016.
Alpha is calculated as the difference in daily return in comparison to the benchmark S&P500 index. For example, if S&P500 delivered a return of -0.2% and the instrument delivered a return of +0.2%, then the Alpha chart of the instrument shows a gain of 0.4%. And, if another instrument delivered a return of -0.3%, then it’s Alpha chart would show a loss of -0.1%.
For example, in the chart below, it is observed that INFY has been underperforming the S&P500 index in recent time. It showed significant outperformance (compared to the S&P500 index) from 9 Jun, 2020 to 14 Mar, 2022. However, AAPL has been outperforming the S&P500 index in recent time. It is noteworthy that AAPL is currently at it’s peak outperformance, which makes it a good investment candidate. Over the last 7 years and 6 months, INFY underperformed the S&P500 index on 48% days. Which indicates that on days INFY underperforms the S&P500 index, it’s performance is marginally worse than on the days it outperforms the S&P500 index. During the same time, AAPL outperformed the S&P500 index on 53% days.
Alpha chart can also be used to compare sectors and investment themes as shown in the image below.
Analysing the chart shown above, an investor can clearly spot that Software industry has been outperforming the S&P500 index in recent time. It showed significant outperformance (compared to the S&P500 index) from 8 Feb, 2016 to 25 Oct, 2021. However, Pharma industry has been underperforming the S&P500 index in recent time. Previously, Pharma industry showed weak performance (underperforming the S&P500 index) from 25 Jan, 2016 to 8 Dec, 2021. Over the last 7 years and 6 months, Software industry outperformed the S&P500 index on 55% days. During the same time, Pharma industry underperformed the S&P500 index on 52% days.
In summary, Alpha chart is a tool that compares stocks, ETFs, indices and investment themes to the benchmark index. This helps identify periods of relative outperformance or underperformance and helps investors rebalance their portfolios in a timely manner.
Follow these easy steps to use Alpha Builder’s tool “Alpha” to compare symbols by outperformance:
1. On the home-page, click “Alpha Builder” or select sub-menu item “ALPHA BUILDER” under the “TOOLS” head of the “PRODUCTS” menu.
2. Scroll down the page and click on “Alpha“.
3. The chart displays NIFTY-50 v/s NIFTY-BANK by default.
4. Click on the left text-box with text as “Symbol 1“, type the symbol and click on one of the presented options.
5. Click on the right text-box with text as “Symbol 2“, type the symbol and click on one of the presented options.
6. Now click on either the left or the right hand lens icon.
7. The chart will depict the alpha for both the selected symbols.
Useful Links:
Sector or Theme Alpha US
How to Use Alpha Builder (YouTube)