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A popular Wendy's commercial in the 80s made famous the question: "Where's the beef?" Good one. And here's an even better one: "Where's the alpha?" You might want to whip this one out the next time you meet with your portfolio manager.
Alpha is the over-and-above-the-expected return. It is the "value added." Therefore, it makes sense that a positive alpha means an investment has outperformed its market-predicted return, while a negative alpha would mean just the opposite. The expected return is calculated by a formula that takes into account the investment's level of unavoidable risk (aka beta).
Ever stepped into an elevator and after the doors close you become aware of an almost-suffocating scent coming from the woman next to you who must have bathed in perfume? Well, as you know, once the doors close you can't escape the smell until the ride is over. This is similar to beta, which is risk that can't be reduced or diversified away. A measure of "systematic" or market related risk, beta is used as a measure relative to a certain index -- such as the S&P 500.
So, for example, let¿s say your portfolio is managed to compete against the S&P 500. If you generate a better return than the index while not taking on added risk (standard deviation of returns) then you get alpha. Low beta means the market-related risk is low and vice versa for high beta.
Another example, let's say a mutual fund or stock has a beta of 1.5 relative to the S&
P500 ¿ that means it is 1.5 times as risky. So, over time, if the S&P 500 goes up 1%, your portfolio should be up 1.5%
plus (one can hope) some percentage of alpha. If the S&P 500 is down 1%, your portfolio should be down 1.5%.
Alpha
and beta are based off of linear regression of a set of data. Warning: this may cause a high school fifth-period flashback,
but it will be over before you know it:
The equation for a line is Y = a + bX.
a = alpha (the Y intercept - the added
value)
b = Beta (the coefficient you multiply X by)
X = S&P 500 (in this case)
Y = your portfolio
Home / Markets / Innovation
Friday, December 07, 2007
Innovation: Calling a Security Cop In a Box
Donna Fuscaldo
FOXBusiness
New York --Peace of mind could come in the form of a webcam.
Not your traditional Internet video cameras, Zonet’s new Internet
Protocol cameras or webcams can alert you to disturbances at your house as they are happening via e-mail.
The
device, which also comes in a wireless version, is mobile, which means it can also be used to protect your possessions in
a hotel room or even in your car as long as there’s a WiFi network nearby. And don’t worry if it's dark out: The webcam has
built-in night vision technology.
Typically, these types of features are found in high-end webcams that sell for upward
of $1,000, but Zonet said advances in voice over Internet protocol, or VOIP, technology are enabling the masses to have some
of the features that were resigned to companies or wealthy individuals. Zonet’s cameras sell for $220 and $320.
“The
technology has drawn down a lot of the manufacturing costs, so we had the choice to bring down the price,’’ said Renson Lee,
vice president of sales at Zonet.
Zonet, of Walnut, Calif., has its roots in networking products, serving big companies.
The Internet video camera is the company’s first foray into webcams, said Lee.
Using software that comes with
the device, you can set the webcam to start recording and alert you if someone or something crosses a predetermined threshold.
The webcam software can automatically e-mail still photos or video so that you can quickly determine if it’s a threat
or simply the mailman. It will also sound an alarm, which could potentially scare off would-be thieves. The software
can view up to 16 cameras. There’s a secure Web site, for monitoring whatever you have your webcam watching all day.
While
the allure of having a security cop in a box could drive adoption, consumers may also be drawn to the product’s video conferencing
capabilities. The device has a two-way audio jack, which means you can hear what’s going on in addition to seeing it.
Given that high-tech products typically scare off the tech illiterate--meaning the masses--Zonet went out of their
way to make the webcam as easy to use and program as possible, said Lee.
“As the whole market shifts to more consumer
products, every product has to be easy to set up,’’ Lee said. “You just have to go through the first one or two pages of the
manual. That’s how easy it is.”
Indeed, simplifying technology is key to getting a product adopted on a widespread
basis. You only need to look to Apple's (AAPL) success with the iPod to see the evidence. Before Apple came on the scene with
its iPod, there were other MP3 players on the market, but none as easy to use as the iPod. Apple has taken that strategy to
its ever growing popular iPhone.
Consumers, who want to spend the cash for the Zonet’s cameras, can buy it online
at tech-gadget sites like www.tigerdirect.com and www.newegg.com.
Zonet is currently in talks with retailers including Micro Center and Fryes about selling the product, said Lee.
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