Alpha ($\alpha$)

Category: finance

The excess return of an investment relative to the return of a benchmark index.

Alpha is the "manager’s skill." If the S&P 500 returns 10% and a managed fund returns 15%, the fund has generated 5% Alpha. Positive Alpha indicates the strategy is successfully beating the market; negative Alpha suggests the manager is underperforming compared to a passive index fund.

Common Examples

• Our algorithmic trading engine is tuned specifically for Alpha generation, ignoring broad market beta exposure to isolate unique price-inefficiencies.
• Institutions pay management fees specifically for the pursuit of consistent Alpha, as passive index funds have already commoditized market-average returns.