alpha

Measure of risk-adjusted performance. An alpha is usually generated by regressing the security or mutual fund's excess return ( excess returns) on the S&P 500 excess return. The beta adjusts for the risk (the slope coefficient). The alpha is the intercept. Example: Suppose the mutual fund has a return of 25%, and the short-term interest rate is 5% (excess return is 20%). During the same time the market excess return is 9%. Suppose the beta of the mutual fund is 2.0 (twice as risky as the S&P 500). The expected excess return ( expected return; excess returns) given the risk is 2 x 9%=18%. The actual excess return is 20%. Hence, the alpha is 2% or 200 basis points. Alpha is also known as the Jensen index. Related: risk-adjusted return. Bloomberg Financial Dictionary

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Portion of the return on an asset (or group of assets) that depends neither on its specific characteristics nor on market fluctuations. Alpha therefore measures the expected return on an asset (or group of assets) when the market (or benchmark) is totally flat. The higher the alpha, the less the performance of an asset or group of assets depends on the market. NYSE Euronext Glossary

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alpha al‧pha [ˈælfə] noun [countable]

another name for alpha version

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   In the context of stock returns, alpha measures the risk-adjusted performance of a security or fund. It is the return on a security in excess of what would be predicted by a risk/return model.

   ► See also CAPM.

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alpha UK US /ˈælfə/ noun IT

► [C] ALPHA VERSION(Cf. ↑alpha version)

► [U] ALPHA TESTING(Cf. ↑alpha testing)

→ Compare BETA(Cf. ↑beta) noun