Plain-English definitions, reviewed by an independent investor
Alpha
Alpha is the return a stock or fund delivered beyond what its risk level predicted. Positive alpha beat the expectation.
Alpha is the return a stock or fund delivered beyond what its risk level predicted. Positive alpha beat the expectation.
Alpha = Actual Return − Expected Return (from its beta)
Why it matters
It shows whether a manager or stock added value, not just rode the market up.
Common confusion
Alpha is only meaningful against a benchmark; a great absolute year can still be negative alpha if the market did better.
Frequently Asked Questions
What does alpha 2% mean?
The investment returned 2% more than its risk would have predicted.
Is alpha the same as profit?
No. You can lose money in a down market yet post positive alpha by losing less than expected.