Alpha

Alpha is a measure indicating how well a stock or portfolio has performed in comparison to the broad market or a benchmark index.

Alpha shows whether portfolio returns are the result of high-quality portfolio management, or due to market swings and higher risk. In other words, it shows if there is a benefit from active management that exceeds simple investing in the index.

When applied to an individual stock, alpha represents its returns that are independent of market fluctuations.

What alpha can tell you

Alpha may be positive or negative. A positive alpha means that investment outperformed its benchmark by a certain percent. A negative alpha means the investment underperformed its benchmark. If the alpha is zero, it indicates that the portfolio or fund is tracking perfectly with the benchmark index. In this case, the investment manager has neither added or lost any value.