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Measure of risk-adjusted performance. Some refer to the alpha as the difference between the investment return and the benchmark return. However, this does not properly adjust for risk. More appropriately, an alpha is generated by regressing the security or mutual fund's excess return on the benchmark (for example 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 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. The alpha depends on the benchmark used. For example, it may be the intercept in a multifactor model that includes risk factors in addition to the S&P 500. Related: Risk-adjusted return.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


1. The measure of the performance of a portfolio after adjusting for risk. Alpha is calculated by comparing the volatility of the portfolio and comparing it to some benchmark. The alpha is the excess return of the portfolio over the benchmark. It is important to Markowitz portfolio theory and is used as a technical indicator.

2. The excess return that a portfolio makes over and above what the capital asset pricing model estimates.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


The mathematical estimate of the return on a security when the market return as a whole is zero. Alpha is derived from a in the formula Ri = a + bRm which measures the return on a security (Ri) for a given return on the market (Rm) where b is beta. See also capital-asset pricing model, characteristic line.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.


Alpha measures risk-adjusted return, or the actual return an equity security provides in relation to the return you would expect based on its beta. Beta measures the security's volatility in relation to its benchmark index.

If a security's actual return is higher than its beta, the security has a positive alpha, and if the return is lower it has a negative alpha.

For example, if a stock's beta is 1.5, and its benchmark gained 2%, it would be expected to gain 3% (2% x 1.5 = 0.03, or 3%). If the stock gained 4%, it would have a positive alpha.

Alpha also refers to an analyst's estimate of a stock's potential to gain value based on the rate at which the company's earnings are growing and other fundamental indicators.

For example, if a stock is assigned an alpha of 1.15, the analyst expects a 15% price increase in a year when stock prices are generally flat. One investment strategy is to look for securities with positive alphas, which indicates they may be undervalued.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
(2006) showed that strains with a mutation in the gene coding for the alpha toxin that were still virulent (but <the wild-type) were able to protect chickens against NE, where as an avirulent strain of C.
Designed Primers i.e., Ccta-F AGCTTCGCATG GAGCAGTA and Ccta-R TCTTCGGAGACA GGATGA were used for amplification of alpha toxin gene of Clostridium chauvoei.
Nagler's test represented the action of C.perfringens alpha toxin (lecithinase) on lecithin of egg yolk onto enriched egg yolk agar medium which appeared as pearly opalescence zone surround the colonies while this reaction was inhibited by C.perfringens alpha toxin antiserum.These results go hand in hand with those recorded by Smith and Holdeman [35] who applied Nagler's test using half antitoxin plate to detect lecithinase activity of alpha toxin of different types of C.perfringens .Dermonecrotic test in albino guinea pigs.
perfringens type A contained alpha toxin gene which gave a characteristic band at 1167bp when visualized under UV light.
These results go hand in hand with those obtained by Augustynowicz et al., [3] who developed a multiplex PCR assay for determination of the toxin genes of C.perfringens and found that C.perfringens alpha toxin gene amplicon was recorded in all testes isolates and gave a characteristic band at 402 bp.
Metabolism of isolated fat cells: The similar effects of phospholipase C (Clostridium perfringens alpha toxin) and of insulin on glucose and amino acid metabolism.
Biological activites contaminating preparations of phospholipase C (alpha toxin) from Clostridium perfringens.Toxicon.
In the past, we've told you about efforts at the University of Illinois (Urbana, IL) to produce a monoclonal antibody-based enzyme-linked immunosorbent assay (Elisa) that rapidly detects small amounts of the alpha toxins produced in the early stages of the growth of C.
Goodwin Ave., Urbana, IL 61801) have produced a monoclonal antibody-based enzyme-linked immunosorbent assay (Elisa) that rapidly detects small amounts of the alpha toxins produced in the early stages of the bacterium's growth.