Financial Glossary
Every metric, ratio and machine-learning concept that powers ARIA Analyst, explained in plain English with formulas, worked examples and links to the product features that use them.
Risk & Statistics
10 terms
Alpha (Jensen's Alpha)
Excess return above what CAPM predicts given the asset’s beta — the manager’s skill.
Beta (β)
Sensitivity of an asset to moves in a benchmark — typically the broad market.
Calmar Ratio
Annualised return divided by maximum drawdown, favouring strategies with shallow losses.
Conditional VaR (Expected Shortfall)
The average loss in the worst (1 - alpha)% of cases — a coherent tail-risk measure.
Kelly Criterion
Optimal fraction of capital to risk per bet to maximise long-term geometric growth.
Maximum Drawdown
The largest peak-to-trough decline of equity over a given window.
Sharpe Ratio
Risk-adjusted return measured as excess return per unit of total volatility.
Sortino Ratio
A refinement of the Sharpe Ratio that penalises only downside volatility.
Value at Risk (VaR)
The maximum loss expected over a given horizon at a given confidence level.
Volatility (σ)
Standard deviation of returns — the most common dispersion-based risk measure.
Valuation
10 terms
Discounted Cash Flow (DCF)
Intrinsic value of an asset as the present value of its future cash flows.
Dividend Discount Model (DDM)
Equity value as the present value of all future dividends, often via the Gordon growth formula.
EV/EBITDA
Enterprise value divided by EBITDA — a capital-structure-neutral cash earnings multiple.
EV/Sales
Enterprise value to revenue — valuation lens for companies without earnings yet.
FCF Yield
Free cash flow per share divided by share price — the "earnings yield" of cash.
Owners' Earnings (Buffett)
Warren Buffett’s preferred cash-flow measure: net income plus non-cash charges minus maintenance capex.
P/E Ratio
Share price divided by earnings per share — the most popular valuation multiple.
PEG Ratio
P/E ratio normalised by the earnings growth rate — Peter Lynch’s favourite.
Price-to-Book (P/B)
Market value of equity divided by accounting book value — classic asset-based metric.
Residual Income Model
Equity value as book value plus the present value of excess returns over cost of equity.
Technical Analysis
8 terms
ADX
Average Directional Index — measures trend strength from 0 to 100 without indicating direction.
Average True Range (ATR)
A volatility measure based on the daily true range, used widely for stop placement and sizing.
Bollinger Bands
A volatility envelope: 20-period moving average plus and minus two standard deviations.
Exponential Moving Average (EMA)
A moving average that weights recent prices more heavily — faster than the SMA.
Fibonacci Retracement
Horizontal lines at 23.6%, 38.2%, 50%, 61.8% of a price swing — common support/resistance targets.
Ichimoku Cloud
A multi-component Japanese indicator giving trend, momentum and support/resistance at a glance.
MACD
Moving Average Convergence Divergence — a trend-following momentum indicator built on two EMAs.
Relative Strength Index (RSI)
A 0-100 momentum oscillator measuring the speed and magnitude of recent price changes.
Fundamental
6 terms
Debt-to-Equity (D/E)
Total debt divided by shareholders’ equity — the simplest leverage ratio.
EBITDA
Earnings before interest, taxes, depreciation and amortisation — operating cash earnings proxy.
Free Cash Flow (FCF)
Cash from operations minus capital expenditures — the cash a business actually generates for owners.
Gross Margin
Revenue minus cost of goods sold, divided by revenue — the pricing-power signal.
Return on Equity (ROE)
Net income divided by shareholders’ equity — profitability per dollar of equity capital.
Return on Invested Capital (ROIC)
NOPAT divided by total invested capital — true return on operating capital, independent of capital structure.
Quant & Machine Learning
6 terms
Isotonic Calibration
A non-parametric monotonic transformation that maps raw model scores to well-calibrated probabilities.
LightGBM
A fast gradient-boosted decision tree framework from Microsoft, dominant on tabular financial data.
Monte Carlo Simulation
A probabilistic technique that simulates thousands of random scenarios to estimate the distribution of outcomes.
Purged K-Fold Cross-Validation
A cross-validation scheme that removes overlapping training samples to prevent look-ahead leakage.
Walk-Forward Analysis
A backtesting procedure that retrains the model on a rolling window and tests on the next out-of-sample period.
XGBoost
Extreme Gradient Boosting — the original modern GBDT library, slightly slower but very robust.
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