Quick Definition

Alpha is a measure of an investment's performance relative to a benchmark, indicating the excess return an investor receives from an investment compared to the market.

Formula

Examples

• 1A mutual fund that achieves a 15% return when its benchmark index returns 10% has an alpha of 5%.
• 2An investment manager who consistently generates positive alpha is considered to be skilled, as they are able to outperform the market.
• 3Negative alpha indicates that the investment has underperformed its benchmark, such as a fund returning 3% when the benchmark returned 5%.

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