Glossary
Alpha
The excess return of a strategy relative to a benchmark, after adjusting for risk.
Alpha measures a strategy's ability to beat the market on a risk-adjusted basis. Positive alpha means the strategy generated returns beyond what its beta would predict. It is a core concept in active management and strategy evaluation.
Key Points
- Alpha is often paired with beta to separate market returns from skill.
- Sustained positive alpha is rare and hard to achieve out-of-sample.
- Transaction costs can quickly erode small alpha strategies.