Glossary

Definitions for financial terms, metrics, and platform-specific concepts used throughout Galedge.

A

Alpha

Return in excess of what the risk model (factor exposures) would predict. True stock-picking skill, not explained by systematic factors. Positive alpha = outperformance; negative = underperformance.

Annualized Return

Return expressed as a yearly rate, regardless of the actual holding period. Converts returns over different periods to a common annual basis for comparison.

Attribution

The process of explaining a portfolio's return by decomposing it into sources — which factors, sectors, or stocks contributed to performance. See Brinson Attribution and Return Decomposition.

B

Backtest

A simulation of a strategy using historical data. Backtesting shows how a strategy would have performed in the past, helping validate logic before deploying real capital.

Benchmark

A reference index used to measure portfolio performance against. Common benchmarks include NIFTY 50 (India) and S&P 500 (US). 'Beating the benchmark' means outperforming it.

Beta

A stock's sensitivity to overall market movements. Beta = 1.0 means the stock moves with the market. Beta = 1.5 means 50% more volatile than the market. Beta = 0.7 means 30% less volatile.

Brinson Attribution

A framework that decomposes excess return (vs benchmark) into Allocation Effect (sector bets), Selection Effect (stock picking within sectors), and Interaction Effect.

C

CAGR

Compound Annual Growth Rate — the smoothed annualized return that accounts for compounding. If a portfolio grows from ₹100 to ₹161 over 5 years, the CAGR is 10% per year.

Covariance Matrix

A matrix showing how stocks' returns move together (co-vary). Essential for portfolio optimization — high covariance between stocks means they offer less diversification benefit.

CVXPY

An open-source Python library for convex optimization problems. Galedge uses CVXPY to solve portfolio optimization with objectives (min risk, max Sharpe) and constraints (position limits, beta bounds).

D

Drawdown

The decline from a portfolio's peak value to its lowest point before recovering. A 20% drawdown means the portfolio fell 20% from its high. Max Drawdown is the worst such decline.

E

Efficient Frontier

The set of portfolios that offer the highest expected return for each level of risk. Portfolios on the frontier are 'efficient' — you can't get more return without taking more risk.

F

Factor

A systematic driver of stock returns. Examples: market beta, size, momentum, value. Factor models explain portfolio returns using these common factors rather than analyzing each stock individually.

Factor Exposure

How much a stock or portfolio 'tilts' toward a particular factor. Expressed as a standardized score (z-score). A MOMENTUM exposure of +1.5 means the stock has strong recent price momentum.

Factor Return

The historical return earned by a factor portfolio. If MOMENTUM returned 3% last month, stocks with high momentum exposure benefited from this tailwind.

I

Idiosyncratic Return

The portion of a stock's return not explained by factor exposures. Also called 'stock-specific return.' Positive idiosyncratic return means the stock beat what the factor model predicted.

L

Long Only

A portfolio that only buys stocks (goes 'long'), never shorts them. All weights are positive and sum to 100%. Galedge currently supports long-only portfolios.

M

Market Cap

Market capitalization — the total market value of a company's outstanding shares. Market Cap = Current Stock Price × Total Shares Outstanding. Used to classify company size (large, mid, small cap).

Max Drawdown

The maximum observed loss from a peak to a trough of a portfolio before a new peak is attained. Measures the worst-case scenario for an investor who bought at the worst time.

N

NIFTY 50

India's benchmark stock market index, comprising the top 50 companies listed on the National Stock Exchange (NSE). Represents approximately 65% of the float-adjusted market capitalization of the NSE.

NSE

National Stock Exchange of India — the country's largest stock exchange. Indian stocks on NSE use the .NS suffix in Yahoo Finance format (e.g., RELIANCE.NS).

O

Objective Function

In portfolio optimization, what the optimizer tries to maximize or minimize. Common objectives: minimize variance, maximize Sharpe ratio, maximize return, or minimize tracking error.

P

P/E Ratio

Price-to-Earnings Ratio — a valuation metric showing how much investors pay per unit of earnings. P/E = Stock Price / Earnings Per Share. Lower P/E may indicate undervaluation; higher may indicate growth expectations.

Portfolio Weight

The fraction of total portfolio value invested in each stock. Weights must sum to 100%. A weight of 5% means 5% of your money is in that stock.

R

Rebalancing

Periodically adjusting portfolio weights back to target allocations. In strategy backtesting, rebalancing triggers the optimizer to re-run and update weights. Transaction costs are incurred on each rebalance.

Return Decomposition

Breaking a portfolio's total return into Factor Return (systematic, driven by factor exposures) and Idiosyncratic Return (stock-specific). Helps identify the source of performance.

S

Sharpe Ratio

A risk-adjusted performance measure. Sharpe = (Portfolio Return - Risk-Free Rate) / Portfolio Volatility. Higher Sharpe means better return per unit of risk. A Sharpe above 1.0 is generally considered good.

Style Factor

A factor capturing a company characteristic that explains stock returns. Galedge's style factors include SIZE, MOMENTUM, VALUE, VOLATILITY, QUALITY, GROWTH, LEVERAGE, LIQUIDITY, DIVIDEND_YIELD, EARNINGS_YIELD.

T

Tracking Error

The standard deviation of the difference between portfolio returns and benchmark returns. Low tracking error means the portfolio closely follows the benchmark; high means it deviates significantly.

Transaction Costs

Costs incurred when buying or selling stocks — commissions, bid-ask spread, market impact. In backtesting, transaction costs are subtracted from returns at each rebalance. Typically modeled as basis points (bps).

Treemap

A visualization where nested rectangles represent hierarchical data. In Galedge's Market Heatmap, rectangle size represents market cap and color represents daily price change.

Turnover

The fraction of portfolio value traded at each rebalance. High turnover = more trading = higher transaction costs. A turnover constraint limits how much the optimizer can change the portfolio.

U

Universe

The set of stocks the optimizer can choose from. Examples: NIFTY 50 (50 stocks), NIFTY 100 (100 stocks), custom (user-defined list). A larger universe offers more diversification but is harder to manage.

V

VaR (Value at Risk)

The maximum expected loss over a given time period at a given confidence level. VaR(95%, 1-day) = ₹50,000 means there is a 5% chance of losing more than ₹50,000 in a single day.

Volatility

Statistical measure of return dispersion — how much returns fluctuate around their average. Usually expressed as annualized standard deviation. Higher volatility = more uncertainty = more risk.

Y

Yahoo Finance

The market data source used by Galedge for stock prices, fundamentals, options data, and news. Use Yahoo Finance ticker format: RELIANCE.NS for NSE, RELIANCE.BO for BSE, AAPL for US stocks.

Z

Z-Score

A standardized score measuring how many standard deviations a value is from the mean. Used for factor exposures: z-score of +2.0 means the stock has an exposure two standard deviations above the average.