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 Glossary

Alpha - Synonym of 'value added', linearly similar to the way beta is computed, alpha is the incremental return on a manager when the market is stationary. In other words, it is the extra expected return due to non-market factors. This risk-adjusted measurement takes into account both the performance of the market as a whole and the volatility of a manager. A positive alpha indicates that a selected portfolio has produced returns above the expected level at that level of risk, and vice versa for a negative alpha.

Beta - A measurement indicating the volatility of a manager relative to a chosen market. A beta of 1 means a manager has about the same volatility as the market. A beta higher than 1 means the manager is to that extent more volatile than the market, while a beta lower than 1 means less volatile, i.e., a beta of 1.7 would indicate that, historically speaking, as the market has risen 1%, the manager has risen 1.7%. Vice Versa.

Rate of Return - It is a tool for indicating and measuring performance, including appreciation (or depreciation), realized capital gains (or losses), and income. Indices are computed and then forward-linked to calculate a rate of return for the period under study, for any type of weighting, i.e. time weighted, dollar weighted, etc. In PSN, returns can be calculated for any time period with a quarterly multiple factor. Most recent quarter represents three fiscal months.

R-Squared - It is used to show how much a manager's variability can be accounted for by the market. For example, if a portfolio's R-Squared is 0.79, then 79% of the manager's variability is due to market conditions. As R-Squared approaches 100, the portfolio is more closely correlated with the market.

Standard Deviation - A measure of dispersion about an average in applied statistics. It is a good measure of the historical variability of the return earned by an investment manager. The assumption is the greater variability in the rate of return connotes greater risk undertaken in achieving the return. For example, one would prefer a portfolio that earns 5% each period to one that alternates between a return of zero in one period and 10% the next. A general rule is that, for any given rate of return, the lower the standard deviation the better; similarly, for any given standard deviation, the manager who provides the highest rate of return is best.