Comments on: Janus: The Roman god of alpha/beta separation? http://allaboutalpha.com/blog/2007/03/25/janus-the-roman-god-of-alphabeta-separation/ A finance blog about hedge funds, portable alpha and alternative investing. Thu, 09 Feb 2012 19:03:08 +0000 http://wordpress.org/?v=abc hourly 1 By: Modular Portfolio Construction « Mohr Collaborative http://allaboutalpha.com/blog/2007/03/25/janus-the-roman-god-of-alphabeta-separation/comment-page-1/#comment-287980 Modular Portfolio Construction « Mohr Collaborative Fri, 18 Feb 2011 06:52:06 +0000 http://allaboutalpha.com/blog/2007/03/25/janus-the-roman-god-of-alphabeta-separation/#comment-287980 [...] (read more) Tags: financial services Categories: Innovation [...] [...] (read more) Tags: financial services Categories: Innovation [...]

]]> By: Marcus Franlin http://allaboutalpha.com/blog/2007/03/25/janus-the-roman-god-of-alphabeta-separation/comment-page-1/#comment-26484 Marcus Franlin Wed, 12 Sep 2007 21:19:49 +0000 http://allaboutalpha.com/blog/2007/03/25/janus-the-roman-god-of-alphabeta-separation/#comment-26484 How can alpha increase standard deviation? Here's how. They draw from two different theories. One from mpt the other from capm. beta = rho*sdev1*sdev2/var1 E(rp) = rf + (rho*sdev1*sdev2/var1)(rm - rf)+ alpha Alpha = rp - rf - (rho*sdev1*sdev2/var1)(rm - rf) You can see that an instrument has a beta of zero and still outperforms the rf...even the rf will have some sdev. The alpha will have a SE. The Information Ratio is alpha/SE or in the case of a market neutral the sharpe ratio. How can alpha increase standard deviation? Here’s how. They draw from two different theories. One from mpt the other from capm.

beta = rho*sdev1*sdev2/var1
E(rp) = rf + (rho*sdev1*sdev2/var1)(rm – rf)+ alpha

Alpha = rp – rf – (rho*sdev1*sdev2/var1)(rm – rf)

You can see that an instrument has a beta of zero and still outperforms the rf…even the rf will have some sdev. The alpha will have a SE. The Information Ratio is alpha/SE or in the case of a market neutral the sharpe ratio.

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