Glossary

Beta:

A measure of a security's or portfolio's volatility, or systematic risk, in comparison to the market as a whole.

CAPM:

A model describing the relationship between risk and expected return that is used in the pricing of risky securities.

Price to Normalized Earnings:

A valuation measure which divides a company's stock price by its "normalized" earnings per share. Normalized earnings are a non-GAAP measure which attempts to adjust earnings per share to remove non-recurring, unusual items and to smooth the cyclical nature of some companies' earnings.

Price to Normalized Free Cash Flow:

A valuation measure which divides a companies stock price by its "normalized" operating cash flow per share. Normalized operating cash flow is a non-GAAP measure which attempts to adjust earnings per share to remove non-recurring, unusual items and to smooth the cyclical nature of some companies earnings.

Treynor Index:

a measurement of investment performance which allows for risk. Similar to the Sharpe index, it is the ratio of the excess of the average portfolio return over the risk-free rate, to the portfolio’s beta. A high Treynor measure indicates a favorable relationship between risk and return in the portfolio.

Jensen's Alpha:

A risk-adjusted performance measure that represents the average return on a portfolio over and above that predicted by the CAPM, given the portfolio's beta and the average market return.

Sharpe Ratio:

A ratio developed by Bill Sharpe to measure risk-adjusted performance. It is calculated by subtracting the risk free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns.