# Understanding Greek Letters in Investment Equations

### Part of the High-Powered Investing All-in-One For Dummies Cheat Sheet

Modern finance is marked by mathematical explanations for the world. You’ll be ahead of the game if you know the Greek letters used to describe different sources of risk and return in investing:

• Alpha (Α, α): Investment return that’s different than you’d expect, given an investment’s beta, which is its exposure to market risk and return. Alpha (which can be positive or negative) describes an intangible value that accounts for the extra return generated (or lost) for the amount of risk taken. Some researchers aren’t sure that alpha exists at all.

• Beta (Β, β): The market beta is 1, so an investment with a beta of more than 1 is more volatile than the market as a whole. You’d expect the investment to return more than the market in an up year and less than the market in a down year.

• Delta (Δ, δ): The percentage change in an investment. Delta often describes how much an option changes in price when its underlying security changes in price.

• Gamma (Γ, γ): The rate of change in delta. Gamma is exposure to any change in price, positive or negative.

• Sigma (Σ, σ): Standard deviation, or the likelihood that any one number in a series — like a series of investment returns — will be different from the return that you expect. The higher the standard deviation, the greater the investment risk