Alpha chart helps investors compare the outperformance of different symbols since 2016.
Alpha is calculated as the difference in daily return in comparison to the benchmark NIFTY-50 index. For example, if NIFTY delivered a return of -0.2% and the instrument delivered a return of +0.2%, then the Alpha chart of the instrument shows a gain of 0.4%. And if another instrument delivered a return of -0.3%, then it’s Alpha chart would show a loss of -0.1%.
For example, in the chart below, it is observed that TCS has been underperforming the NIFTY-50 index in recent times, despite having previously outperformed it until September 15, 2021. Similarly, INFY is also currently underperforming the NIFTY-50 index, although it had previously outperformed it until September 12, 2017. However, INFY reversed this trend and outperformed the NIFTY-50 index until March 14, 2022.
Over the span of 7 years, 5 months, and 5 days, TCS outperformed the NIFTY-50 index on 51% of the observed days. On the other hand, INFY outperformed the NIFTY-50 index on 52% of the observed days during the same period.
Alpha chart can also be used to compare sectors and investment themes as shown in the image below.
Analysing the chart shown above, an investor can clearly spot that Pharma industry only outperformed the benchmark index during Jan-May 2020 while IT industry outperformed for a longer period, from Nov-2017 to Jan-2022.
In summary, Alpha chart is a tool that compares stocks, ETFs, indices and investment themes to the benchmark index. This helps identify periods of relative outperformance or underperformance and helps investors rebalance their portfolios in a timely manner.
Follow these easy steps to use Alpha Builder’s tool “Alpha” to compare symbols by outperformance:
1. On the home-page, click “Alpha Builder” or select sub-menu item “ALPHA BUILDER” under the “TOOLS” head of the “PRODUCTS” menu.
2. Scroll down the page and click on “Alpha“.
3. The chart displays NIFTY-50 v/s NIFTY-BANK by default.
4. Click on the left text-box with text as “Symbol 1“, type the symbol and click on one of the presented options.
5. Click on the right text-box with text as “Symbol 2“, type the symbol and click on one of the presented options.
6. Now click on either the left or the right hand lens icon.
7. The chart will depict the alpha for both the selected symbols.