Portfolio
What is Alpha (Ξ±)?
Alpha measures the excess return of an investment relative to a benchmark, it represents the value added (or destroyed) by active management.
Formula
Alpha = Actual Return - [Risk-Free Rate + Beta Γ (Market Return - Risk-Free Rate)]
How to Interpret
Positive alpha means outperformance vs. the benchmark after adjusting for risk. Negative alpha means you'd have been better in an index fund.
Typical Ranges
Positive alpha = outperformance. Even 1-2% annual alpha is exceptional over time.