By making this alpha benchmark-neutral, a new modified alpha will be computed where the beta is reduced to one. To make the alpha benchmark-neutral, subtract the product of Tara Industries' beta and the benchmark alpha from the original alpha: $[1.90 - (1.53 \times 0.90)] = 0.523\%$

Things to Remember

• Alpha: Alpha is a measure of the active return on an investment, the performance of that investment compared to a suitable market index.
• Beta Coefficient: Beta measures the volatility or systematic risk of a security or a portfolio in comparison to the market as a whole.
• Information Coefficient: Information coefficient measures the correlation between the forecasted returns and the actual returns.
• Benchmark-Neutral Portfolio: A portfolio that is constructed to have zero exposure to the systematic risk factors of a specific benchmark.
• Portfolio Management: The art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance.