Alpha -> The New System

Alpha → The New System 📈
Calculate and visualize your asset’s Alpha relative to a chosen benchmark over a rolling lookback period.

What is Alpha? 🤔
Alpha measures the excess return of an asset compared to what would be predicted by its sensitivity (beta) to a benchmark. A positive Alpha means your asset is outperforming the benchmark after accounting for market moves; a negative Alpha means it’s underperforming.

Indicator Inputs ⚙️
Lookback Period ⏳
Number of bars (e.g. days) over which to compute rolling averages, covariance, and variance.

Benchmark Symbol 🏷️
The ticker of the market or index you want to compare against (default: BTCUSD).

How It Works 🧮
Fetch Benchmark Prices
Retrieve the close prices of your chosen benchmark on the same timeframe.

Compute Periodic Returns
Calculate the percent change each bar for both your asset and the benchmark.

Rolling Averages
Smooth those returns over the lookback period to get mean asset return and mean benchmark return.

Covariance & Variance

Covariance between asset and benchmark returns shows how they move together.

Variance of benchmark returns measures its own volatility.

Beta Calculation
Divide covariance by benchmark variance (with a check to avoid divide-by-zero). Beta indicates how sensitive your asset is to benchmark moves.

Alpha Calculation
Subtract (Beta × mean benchmark return) from mean asset return. The result is your asset’s average outperformance (or underperformance) per bar.

Plot & Interpretation 🎨
Line Color

🟢 Green when Alpha > 0 (asset is outperforming)

🔴 Red when Alpha < 0 (asset is underperforming)

Zero Line
A dashed gray line marks Alpha = 0 as the breakeven point.

Pro Tips 💡
A consistently positive Alpha suggests your strategy or selected asset adds value beyond market movements.

A negative Alpha may signal underperformance—time to reconsider allocation or strategy.

Use different benchmarks (e.g., ETH, total market cap, sector indices) to gauge performance in various market contexts.

Combine Alpha with Beta: a high Beta + positive Alpha means strong upside in bull markets, but watch out in downturns.

By tracking Alpha in real time, you’ll know at a glance whether your asset truly shines on its own or is merely riding the broader market wave. 🎯