Verbull Word of the day
Finance glossary

Alpha

Risk · advanced
Definition

Return earned above what a benchmark or risk model predicts.

Alpha measures the excess return of an investment relative to the return predicted by its risk, often its benchmark. Positive alpha suggests skill or an edge; negative alpha means underperformance. Generating consistent alpha after fees is notoriously difficult.

In a sentence

The manager's 3% alpha meant he beat the benchmark by more than his risk alone would predict.

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