Financial Terms Glossary

A technical indicator that uses volume and price to assess the cumulative flow of money into or out of a security. It combines closing price location within the daily range with volume data. Some analysts use it alongside price charts to look for divergences.

The process of dividing investments among different asset categories such as stocks, bonds, real estate, and cash. The mix depends on individual factors including time horizon, risk tolerance, and financial goals. Asset allocation is a fundamental concept in portfolio construction.

A measure of a security's volatility relative to a benchmark, typically the overall market. A beta of 1.0 means the security tends to move in line with the market. A beta greater than 1.0 indicates higher volatility, while less than 1.0 indicates lower volatility. Beta is backward-looking and based on historical data.

A technical analysis tool consisting of a middle band (typically a 20-day simple moving average) and two outer bands set at standard deviations above and below. The bands expand during periods of high volatility and contract during low volatility. Named after John Bollinger who developed the indicator in the 1980s.

The net asset value of a company, calculated as total assets minus intangible assets and liabilities. Book value per share divides this figure by the number of outstanding shares. It represents the theoretical value shareholders would receive if the company liquidated all assets and paid all debts.

The mean annual growth rate of an investment over a specified period longer than one year. CAGR smooths out volatility to show a constant rate of return. It is useful for comparing the historical performance of different investments but does not predict future returns.

A liquidity ratio that measures a company's ability to pay short-term obligations. Calculated as current assets divided by current liabilities. A ratio above 1.0 indicates the company has more current assets than current liabilities. Different industries have different typical current ratios.

S&P 500 companies that have increased their dividend payments for at least 25 consecutive years. This informal classification is tracked by various financial data providers. Being a Dividend Aristocrat reflects historical dividend growth but does not guarantee future dividend increases or stock performance.

The annual dividend payment divided by the current stock price, expressed as a percentage. For example, a stock trading at $100 that pays $4 in annual dividends has a 4% yield. Dividend yield changes as stock prices fluctuate, even if the dividend payment remains constant.

An investment approach where a fixed dollar amount is invested at regular intervals regardless of price. This results in buying more shares when prices are low and fewer when prices are high. DCA is a mechanical approach that removes the need to time the market.

A company's net income divided by its number of outstanding shares. EPS shows how much profit is attributable to each share of stock. Companies report both basic EPS and diluted EPS, which accounts for potential shares from options and convertible securities.

An investment fund that trades on stock exchanges like individual stocks. ETFs typically track an index, sector, commodity, or other asset. They offer diversification similar to mutual funds but with the trading flexibility of stocks and generally lower expense ratios.

The date on or after which a security trades without the right to receive the next dividend payment. To receive a dividend, an investor must own the stock before the ex-dividend date. Stock prices typically adjust downward by approximately the dividend amount on this date.

A technical analysis tool that uses horizontal lines at key ratios (23.6%, 38.2%, 50%, 61.8%, 78.6%) derived from the Fibonacci sequence. These levels are drawn between a high and low point on a chart. Some traders use these levels to identify potential areas where price might pause or reverse.

The cash a company generates after accounting for capital expenditures needed to maintain or expand its asset base. Calculated as operating cash flow minus capital expenditures. FCF represents cash available for dividends, debt repayment, acquisitions, or share buybacks.

A technical indicator calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. A signal line (9-period EMA of the MACD) is plotted alongside. The indicator shows the relationship between two moving averages. Developed by Gerald Appel in the 1970s.

The total market value of a company's outstanding shares, calculated by multiplying the current stock price by the number of shares outstanding. Companies are often categorized as large-cap (over $10 billion), mid-cap ($2-10 billion), or small-cap (under $2 billion), though these thresholds vary.

A calculation that averages a security's price over a specified number of periods, creating a smoothed line on a chart. Common types include simple moving average (SMA), which weights all periods equally, and exponential moving average (EMA), which gives more weight to recent prices.

A valuation ratio calculated by dividing the current stock price by earnings per share. A higher P/E may indicate that investors expect higher future growth, or that the stock is overvalued relative to earnings. P/E ratios vary significantly across industries and market conditions.

The percentage of earnings paid out as dividends to shareholders. Calculated as dividends per share divided by earnings per share. A payout ratio of 50% means half of earnings are distributed as dividends. Very high payout ratios may be unsustainable if earnings decline.

A company that owns, operates, or finances income-producing real estate. REITs are required by law to distribute at least 90% of taxable income to shareholders as dividends. They trade on major exchanges and provide a way to invest in real estate without directly owning property.

A momentum indicator that measures the speed and magnitude of recent price changes on a scale of 0 to 100. Developed by J. Welles Wilder Jr. in 1978. The default calculation uses 14 periods. RSI is one of many technical indicators used in chart analysis.

A statistical measure of how spread out values are from their average. In finance, it's commonly used to measure the volatility of an investment's returns. Higher standard deviation indicates greater variability in returns, often interpreted as higher risk.

Terms used in technical analysis. Support refers to a price level where a stock has historically had difficulty falling below. Resistance refers to a level where a stock has had difficulty rising above. These concepts are based on historical price patterns and are not predictive.

An index that measures the market's expectation of 30-day volatility based on S&P 500 index options. Often called the "fear index," higher VIX values generally correspond to greater expected volatility. The VIX is calculated and published by the Chicago Board Options Exchange.

The number of shares or contracts traded in a security or market during a given period. Volume is often displayed as bars beneath price charts. Higher volume indicates more trading activity. Volume patterns are sometimes analyzed alongside price movements.

A graph showing the relationship between bond yields and their maturities. A normal yield curve slopes upward, with longer-term bonds yielding more than short-term bonds. An inverted yield curve, where short-term yields exceed long-term yields, has historically preceded some economic recessions.