Financial Glossary

Interest calculated on both the initial principal and the accumulated interest from previous periods. Enables exponential (rather than linear) growth over time.

A basket of securities — usually stocks or bonds — that trades on an exchange like a single stock, offering diversification and intraday liquidity at low cost.

The rate at which the general level of prices for goods and services rises, eroding purchasing power over time. Central banks typically target 2% annual inflation.

A line plotting bond yields against their maturity dates. Its shape encodes market expectations about growth, inflation, and monetary policy.

The practice of spreading investments across different assets, sectors, or geographies to reduce exposure to any single risk. 'Don't put all your eggs in one basket.'

The excess return an investment generates over its expected return based on risk (beta). Positive alpha = outperformance; negative alpha = underperformance.

A measure of a stock's volatility relative to the broader market. Beta = 1 moves with the market; > 1 amplifies moves; < 1 dampens them; negative beta moves opposite.

A measure of risk-adjusted return: excess return over the risk-free rate, divided by the portfolio's standard deviation. Higher is better.

A statistical measure of how much a security's returns vary over time. Commonly expressed as annualized standard deviation. Higher volatility means larger swings up and down.

Annual dividend per share divided by share price, expressed as a percentage. Represents the cash income a shareholder receives relative to what they paid.

The total dollar value of a company's outstanding shares — share price multiplied by shares outstanding. Determines a company's size classification.

A valuation metric comparing a company's current share price to its per-share earnings. A higher P/E implies investors expect stronger future growth or accept lower earning yields.