Definitions What is a RiskGrade? How is relative strength calculated? What is the DJ Wilshire 5000?

What is a RiskGrade?    [ top ]

A RiskGrade is a measure of price volatility (or return volatility) that helps investors better understand their market risk. RiskGrades can range from 0 to 1,000 or more, where 100 corresponds to the market-cap-weighted average volatility of global equity markets during normal market conditions from 1995 to 1999. The SSR system makes use of the one-year average RiskGrade, which eliminates the bias that short-term fluctuations can cause in the current RiskGrade figure.

The RiskGrade statistic is a standardized measure of volatility and, therefore, allows for a direct apples- to-apples comparison of investment risk across all asset classes and regions. For example, we can say that a stock with a RiskGrade of 300 is six times as risky as a bond fund with a RiskGrade of 50. Furthermore, RiskGrades captures all components of market risk: equity, interest rate, currency, and commodity risk. A RiskGrade is a consistent, robust, dynamic, and global risk measure that operates differently from traditional risk measures—such as beta, standard deviation, and average shortfall. RiskGrades are indicators of risk based on the volatility of returns. Volatility is a universal risk measure applicable to all asset classes. The higher the volatility of returns, the higher an asset’s RiskGrade.

A RiskGrade of 0 indicates that a financial asset effectively has no price volatility. A RiskGrade of 1,000 indicates that a financial asset is 10 times as volatile as an asset or index with a RiskGrade of 100. The RiskGrade of an asset increases in direct proportion to its price volatility, and one can compare the RiskGrades of different assets by assuming a linear relationship.

Click [ here ] for more information on the RiskGrade measure.

How is relative strength calculated?    [ top ]    

The calculation looks at the price movement after the highest closing price the stock achieved since being added to the SSR portfolio relative to the movement of the DJ Wilshire 5000 since the close of the day on which the stock reached its high.

The calculation for the relative strength value is as follows:

What is the DJ Wilshire 5000?    [ top ]

The DJ Wilshire 5000 total market index represents the broadest index for the U.S. equity market, measuring the performance of all U.S.-headquartered equity securities with readily available price data. The index was originally named after the nearly 5,000 stocks it contained when it was first created, but it has grown to include over 6,500 issues (reflecting the growth in U.S. equity issues as a whole).