Understanding Stock Weighted Alpha Ratings: A Comprehensive Guide

The weighted alpha on a stock is an expression of how much its price has risen, or fallen, in the past year. Most of the emphasis is placed on the most recent movement of the stock. Alpha is the measure of the stock's fluctuation, and weighted just means that the higher emphasis is placed on the most recent figures. Using this figure can provide insight into a stock's value.

Weighted Alpha

A stock that has not risen or fallen in value much this year has a low alpha. A stock that's value has risen has a high alpha, and if the value has risen in the last quarter, the weighted alpha will be higher. A stock with a negatively weighted alpha has fallen in value, specifically in the most recent time period.

Using the Alpha

You may think it is wise to buy a stock with a high weighted alpha, but this stock may be currently over valued. Look for a stock that you believe still has room for growth in the coming year, or for as long as you intend to hold it. This is called a "value" stock because you are getting a value on the purchase by anticipating its growth, instead of purchasing it at its height.