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Plotting Alpha and Beta
To plot Alpha and Beta in MetaStock follow the steps below. **The custom indicator named Beta is required to plot Alpha.
In the Windows versions of MetaStock,
To plot Alpha:
* Create the custom formulas Alpha and Beta (see below for formula syntax).
* Open a chart of the desired security.
* Drag the price plot of the index you are comparing, into the chart of the security and close the chart of the index. **Maximize the security chart if needed.
* Drag the custom indicator Alpha from the Quick List and drop it onto the price plot of the index. **The index plot will turn a purplish color when you are plotting on top of it.
**Note, this formula is set to calculate Alpha over 21 periods. To change the time periods replace each instance of 21 in the formula with the desired number of periods and also change the time periods in the Beta custom indicator.
Alpha:
( Sum( ROC( CLOSE ,1 ,% ) ,21 ) - ( Fml( "Beta" ) * Sum( ROC( INDICATOR,1,%) ,21 ) ) ) / 21
To plot Beta:
* Open a chart of the desired security.
* Drag the price plot of the index your comparing, into the chart of the security.
* Drag this custom indicator from the Quick List and drop it onto the price plot of the index.
Note, this formula is set to calculate beta over 21 periods. To change the time periods replace each instance of 21 in the formula with the desired number of periods.
Beta:
( ( 21 * Sum( ROC( CLOSE ,1 ,% ) * ROC( INDICATOR ,1 ,% ) ,21 ) ) - ( Sum( ROC( CLOSE ,1 ,% ) ,21) * Sum( ROC( INDICATOR ,1 ,% ) ,21 ) ) ) / ( (21 * Sum( Pwr( ROC( INDICATOR ,1 ,% ) ,2 ) ,21 )) - Pwr( Sum( ROC( INDICATOR ,1 ,% ) ,21 ) ,2 ))
**Beta is a measure of volatility of one security against another. This is typically used to measure the volatility of a stock against an index like the S&P 500. A value greater than one indicates the stock is more volatile than the index.
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