statistical significance to see if it is both positive and statistically different from zero. This performance tool incorporates the following strengths: II It allows management to opine whether skill is truly present or excess returns are happenstance. It tests whether the manager has generated excess returns vis a vis the benchmark. II It allows management to distinguish between excess returns due to leverage and excess returns due to skill. II The alpha and beta statistics, and tests of significance, are easy to calculate. II The beta statistic shows if an element of the manager's returns are derived from being overweight or underweight the market (occurs if the beta is statistically different from 1.0). This performance tool incorporates the following weakness: 11 There may not be a sufficient number of data points to permit a satisfactory conclusion about the statistical significance of alpha. Tool #5-Alpha versus the Peer Group This tool regresses the manager's excess returns against the excess returns of the manager's peer group. It is used to determine whether the manager demonstrates skill over and above what is found in the peer group. The peer group's return is the capital-weighted average return of all managers who trade comparable strategies. The peer group is basically the manager's competitors in his strategy. The outputs of this regression are: II An intercept, often referred to as "alpha," or skill. II A slope coefficient against the excess returns of peer group, often referred to as "beta." The alpha term represents the manager's excess return against the peer group. The beta term measures the extent to which the manager employs greater or lesser amounts of leverage than do competitors. Standard confidence tests can be applied to the regression's outputs. The alpha term can be tested for statistical significance to see if it is both positive and statistically different from zero. This performance tool incorporates the following strengths: II It allows management to opine whether skill is truly present or excess returns are happenstance. It tests whether the manager has generated excess returns vis a vis the peer group. II It allows management to distinguish between excess returns due to leverage and excess returns due to skill. 11 The alpha and beta statistics, and tests of significance, are easy to calculate.