Nasdaq OMX Group Monday launched five indices measuring the performance of individual stocks against exchange-traded funds.

The Alpha Indexes, Nasdaq OMX said, "will allow investors and traders the opportunity to generate returns even when the market is down."

The indices allow traders and investors to track the return of a single stock or exchange-traded fund against a leading ETF or another single stock of the same type. For example, if the price of a stock declines less than a specific ETF, the NASDAQ OMX Alpha Index tracking the specific relationship between the two will increase. This ability to track correlation gives market players the opportunity to adjust their portfolios in accordance with the particular market relationship being tracked.

"Nasdaq OMX Alpha Indexes have the potential for being as widely used as other indexes that are industry standards for market volatility and price," said Robert E. Whaley of Vanderbilt University's Owen Graduate School of Management, as part of Nasdaq's announcement. "With NASDAQ OMX Alpha Indexes, you're trading correlation--moreover, correlation between some important asset classes like bonds versus stocks, gold versus stocks or emerging market equities versus US equities. The recent financial crisis tells us how important that can be."

"The debut of Nasdaq OMX Alpha Indexes will allow us to list proprietary options in the near future on PHLX or the NASDAQ Options Market." said Eric Noll, Executive Vice President of US Transaction Services at Nasdaq OMX.

The Nasdaq OMX Alpha Indexes were developed in conjunction with Jacob S. Sagi, Financial Markets Research Center Associate Professor of Finance, and Robert E. Whaley, Valere Blair Potter Professor of Management and Co-Director of the cebter, both of the Owen Graduate School of Management, at Vanderbilt University.

The Alpha Indexes use a proprietary calculation, which measures the performance of a single stock or ETF, which is the target, against another single stock or leading ETF, which is the benchmark. The relative performance of the target and benchmark is calculated by comparing daily price returns plus dividends to the previous trading day.

The Alpha Indexes that are tracking highly liquid symbols are now available:

  • Alpha AAPL vs. SPY Index shows how AAPL has performed compared to the SPDR(R) S&P(R) 500 ETF;
  • Alpha GLD vs. SPY Index shows how SPDR(R) Gold Trust has performed compared to the SPDR(R) S&P(R) 500 ETF;
  • Alpha TLT vs. SPY Index shows how treasury notes have performed compared to the SPDR(R) S&P(R) 500 ETF;
  • Alpha C vs. XLF Index shows how Citigroup has performed compared to the Financial Select Sector SPDR(R) Fund;
  • Alpha EEM vs. SPY Index shows how iShares MSCI Emerging Markets ETF has performed compared to the SPDR(R) S&P(R) 500 ETF.

 

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