DEFINITION of 'Weighted Alpha'

A weighted measure of how much a stock has risen or fallen over a certain period, usually a year. Generally, more emphasis is placed on recent activity by assigning higher weights to it than those assigned to earlier movements. This helps to give a return figure that has a greater focus on the most current period and is a more relevant measure for short-term analysis. This technique is popular with technical analysts.

BREAKING DOWN 'Weighted Alpha'

If the stock was up over the period, it will have a positively weighted alpha. An unchanged stock price has a small weighted alpha. A stock whose price has fallen over the period will have a negatively weighted alpha. Technical analysts use this measure to identify companies that have shown a strong trend over the past year and, more specifically, to focus their attention on companies whose momentum is building.

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  1. What are the best technical indicators to complement Weighted Alpha?

    Find out how technical analysts and traders use a stock's weighted alpha to confirm momentum or select specific stocks to ... Read Answer >>
  2. Why is the Weighted Alpha important for traders and analysts?

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