What is alpha in finance?

[Gaurav]

Investment performance reports often mention alpha. What is alpha in finance, and how is it used to measure investment success?

 

[Ynessira]

Alpha in finance measures an investment's excess return above its benchmark, like the S&P 500, after adjusting for risk via the Capital Asset Pricing Model (CAPM). Positive alpha signals outperformance by a fund manager, while negative alpha indicates underperformance. The formula is Alpha = Portfolio Return - [Risk-Free Rate + Beta × (Market Return - Risk-Free Rate)].

 

[jasminsain]

In finance, the alpha is used to measure the performance of an investment. It demonstrates the level of the return created by active management. A positive alpha implies that the investment performed better than the market whereas a negative alpha shows that the investment is performing worse than the market.

 

[daisy]

In finance, alpha is used to assess the performance of an investment. It reflects the level of return achieved through active management. A positive alpha suggests that the investment outperformed the market, whereas a negative alpha indicates that the investment underperformed the market.

 

[Adam]

In the world of finance, alpha is the term used to describe the additional return an investment can generate over a benchmark (such as a market index). If an investment has a positive alpha, it means that it has delivered better returns than the market. On the other hand, if the alpha is negative, it means that the investment has lagged behind the market.

 

[Elisa]

Alpha in finance is a measure of how much an investment outperforms or underperforms the market.

• Positive alpha = the investment beat the market
• Negative alpha = it did worse than the market