Financial Glossary

Compound Annual Growth Rate — the annualized rate of return over a period, accounting for compounding.

CAGR = (Ending Value / Beginning Value)^(1/n) − 1

The single calendar year with the highest and lowest return in the measured period.

The percentage of calendar years in the measurement period where the asset delivered a positive return.

The actual overall return of an investment, including both capital appreciation and dividend income.

The anticipated average return of an investment based on statistical models or historical data.

An annualized return metric that accounts for the exact size and timing of multiple cash flows.

The aggregate percentage price or value difference between the beginning and end of a specific scenario.

A distribution of a portion of a company's earnings directly to its shareholders.

An investing strategy involving equal, periodic capital deployment regardless of asset price.

The annual dividend income of an investment divided by its original purchase price.

Yield on Cost = Current Annual Cash Dividend / Original Cost Basis

The largest peak-to-trough decline in the asset's value over the measurement period.

Max Drawdown = (Trough Value − Peak Value) / Peak Value

Risk-adjusted return: how much excess return you earn per unit of total risk (volatility).

Sharpe = (Portfolio Return − Risk-Free Rate) / Portfolio Volatility

Like Sharpe, but only penalizes downside volatility — a more accurate risk measure for asymmetric return distributions.

Sortino = (Portfolio Return − Risk-Free Rate) / Downside Deviation

Measures risk-adjusted return using maximum drawdown as the risk measure instead of volatility.

Calmar = Annualized Return / Maximum Drawdown

Measures risk-adjusted return based on systematic risk (Beta) instead of total volatility.

Treynor = (Portfolio Return − Risk-Free Rate) / Beta

Captures the entire return distribution, assessing the probability of winning against losing relative to a minimum acceptable return.

Omega = Probability Weighted Gains / Probability Weighted Losses

Measures a portfolio manager's ability to generate excess returns relative to the benchmark's tracking error.

IR = (Portfolio Return − Benchmark Return) / Tracking Error

The annualized standard deviation of an asset's returns — a measure of how much prices fluctuate.

Ann. Volatility = Daily Std Dev × √252

A measure of an asset's sensitivity to broad market movements relative to a benchmark (e.g. S&P 500).

Beta = Cov(Asset, Market) / Var(Market)

Excess return above what market risk (beta) would predict — a measure of genuine value added.

Alpha = Actual Return − (Risk-Free Rate + Beta × Market Excess Return)

Breaking down an asset's total volatility into contributions from macro risk factors (e.g. equity market, interest rates, inflation).

Company-specific risk that cannot be explained by macroeconomic factors — the residual after factor decomposition.

The lowest absolute portfolio or asset value reached during a specific time period or market crash.

The set of optimal portfolios offering the highest expected return for each level of risk.

A mathematical framework for finding the portfolio that maximizes return per unit of risk using historical means and covariances.

A robust portfolio construction method that allocates risk equally across asset clusters without relying on expected return assumptions.

The strategy of dividing an investment portfolio among different asset categories.

A risk management strategy that mixes a wide variety of investments to reduce exposure to any single asset.

The process of realigning the weightings of a portfolio to maintain a target risk profile.

A statistical measure indicating the degree to which two securities move in relation to each other.

A 9-point scoring system evaluating a company's financial strength across profitability, leverage, and operating efficiency.

A bankruptcy prediction model that combines 5 financial ratios into a single score indicating financial distress risk.

Z = 1.2X₁ + 1.4X₂ + 3.3X₃ + 0.6X₄ + 1.0X₅

Price-to-Earnings ratio — the market price of a stock divided by its earnings per share, a key valuation measure.

P/E = Market Price Per Share / Earnings Per Share (EPS)

Annual dividend paid per share divided by the current share price — expressed as a percentage income return.

Dividend Yield = Annual Dividends Per Share / Current Share Price

A type of pooled investment security that holds multiple underlying assets but trades on an exchange like a single stock.

A company that pools money from many investors and invests the money in securities.

The total dollar market value of a company's outstanding shares of stock.

Market Cap = Current Share Price × Total Outstanding Shares

A rolling average of an asset's price over a defined window — used to identify trends and momentum signals.

SMA(n) = Sum of closing prices over n days / n

The highest price an asset reached in the past 52 weeks — a key reference for momentum and valuation context.

A prolonged financial market condition in which prices are rising or strongly expected to rise.

A condition in which securities prices fall aggressively and widespread pessimism sustains the downside.

A significant, widespread, and sustained decline in national economic activity.

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

A scenario where short-term government bonds offer higher yields than long-term bonds, signaling economic distress.

The percentage of the labor force that is jobless and actively looking for work.

The total money spent on final goods and services by individuals and households.

A statistical measurement showing how many standard deviations an economic metric is from its historical average.

A statistical modeling technique that projects thousands of possible future paths to forecast probabilities.

Testing an exact portfolio strategy against historical chronological market data.

An analysis tool comparing the deployment of capital all at once versus spreading it over time.

A targeted simulation isolating how a portfolio behaves during specific historical crises or sudden shocks.

A projection engine for restricted stock units (RSUs) and employee stock options over time.

A form of employee compensation issued in the form of company stock rather than cash.

A period of time an employee must wait before any portion of their promised equity is officially earned.

A tax levied on the profit realized upon the sale of a non-inventory asset, like stocks.