Which of the following methods involves using the alpha of a stock compared to a benchmark?

The alpha method involves evaluating a stock's performance relative to a benchmark index, which is essential for assessing its risk-adjusted return. Alpha represents the excess return of an investment compared to the return predicted by a market index or benchmark. If a stock has a positive alpha, it indicates that the stock has performed better than expected when adjusted for its volatility and risk compared to that benchmark. Conversely, a negative alpha would suggest underperformance.

In the context of this question, the alpha method is specifically designed to highlight how much the stock has outperformed or underperformed in relation to its benchmark, making it the most relevant methodology. Understanding alpha allows investors to determine the effectiveness of an investment strategy beyond mere market movements.

Other methods like the percentage change method focus on raw performance without accounting for the risk associated with the investment, while trend slope and Levy methods pertain to different analytical techniques that do not directly engage with the concept of alpha relative to a benchmark.