Alpha

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Alpha is a measure of return.

Alpha is a measure of a portfolio's return in excess of the market return, after both have been adjusted for risk.[1]

It represents the value a manager adds to the performance of the portfolio over the market.[2] Alpha purposely does not take into account pure market performance or the particular risk level of the strategy. Rather, it offers an indicator of the manager's skill due to his/her ability to provide value-added returns to the strategy for clients -- rather than, for example, simply participating in a bull market.[3]

For example, if a fund had an alpha of 1.0 during a given month, it would have produced a return during that month that was one percentage point higher than the benchmark Treasury. Alpha can also be used as a measure of residual risk, relative to the market in which a fund participates.[4]

References

  1. ↑ Alpha. Russell.com. Retrieved on February 6, 2008.
  2. ↑ Alpha-Beta: Separation, Transportation and Recombination. PIMCO. Retrieved on February 6, 2008.
  3. ↑ "Hedge fund terms”. Liberty Gateway. Retrieved on Jan. 27, 2008.
  4. ↑ "Hedge Fund Glossary ”. Hedge Fund Lounge. Retrieved on Feb. 17, 2008.
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