what is weighted alpha 
weighted alpha measures the performance of a security over a certain period usually a year but with relatively more importance given to recent activity compared to earlier performance alpha is a term used to describe an investment strategy s ability to beat the market or its edge alpha is thus also often referred to as excess return or abnormal rate of return which refers to the idea that markets are efficient and so there is no way to systematically earn returns that exceed the broad market as a whole understanding weighted alphaas implied in the name weighted alpha is a weighted measure of how much a security say a stock has risen or fallen over a defined period usually a year generally more emphasis is placed on recent activity by assigning higher weights to later performance measurements than those assigned to earlier measurements this helps to give a return figure that has a greater focus on the most current period which should prove to be more relevant when analyzing that security this metric is quite popular with technical analysts and those who tend to rely on analytics to augment their trading decision weighted alpha uses weighted mathematical calculations to arrive at an alpha performance figure alpha is a measure of risk adjusted performance relative to a benchmark in the field of asset management alpha is often thought of as a proxy for the fund manager s skill that reasoning can also be valid when analyzing a stock which is in part a reflection of the effectiveness of a firm s management team for example a stock that had returns on par with the benchmark adjusted for the level of risk assumed has an alpha of zero a positive alpha shows that the stock produced a return greater than the benchmark while a negative alpha indicates the converse weighted alpha calculationweighted calculations give an assigned weight based on various factors indexes use weighting to give higher weight to securities by price or market cap in a weighted alpha calculation higher weight is typically given to more recent time period returns over a time series weighted alpha calculations usually focus on one year of a security s return in general if a security has a positive weighted alpha an investor can assume its price has been gaining over the past year adversely if a security s price has a negative weighted alpha investors can assume that the one year price return is lower weighted alpha w n where w weight assigned to each data point alpha n number of days in defined time series begin aligned text weighted alpha frac sum w times alpha n textbf where w text weight assigned to each data point alpha text alpha n text number of days in defined time series end aligned weighted alpha n w where w weight assigned to each data point alphan number of days in defined time series in a weighted alpha calculation weights can vary based on preferences or technical analysis software programs some weighted alpha calculations may assign weights by quartiles while others use a standard decreasing weight methodology alpha is often used in conjunction with beta the greek letter which measures the broad market s overall volatility or risk known as systematic market risk weighted alpha inferencesweighted alpha is used by a variety of investors most commonly technical analysts will use weighted alpha as an indicator for supporting buy and sell signals 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 when weighted alpha is positive it can support a bullish buy signal when weighted alpha is negative it can support a bearish sell signal as an example consider a stock that has experienced several highs and lows over the last year through both bullish and bearish trending patterns a technical analyst using a bollinger band channel may see that the price is approaching its support trendline if the stock has a positive weighted alpha it can be an affirmation that the stock s price has largely been gaining over the last year supporting another bullish push higher in another scenario a trader may see a stock s price reaching and beginning to exceed its resistance band in a bollinger band channel often this is a signal of a reversal and would indicate a sell signal however if this security has a positive weighted alpha it is more likely to break beyond its resistance level and move higher therefore the weighted alpha could support a buy trade in this scenario investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal 