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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 ?
analyzed effects of alpha-blockers (tamsulosin and doxazosin) on stone expulsion rate, stone expulsion time, and treatment-emergent adverse events with four RCTs and one cohort study.
We didn't in [subsequent] guidelines say that you should [never] use an alpha-blocker in hypertension.
established in literature to guide clinicians to choose phenoxybenzamine over selective alpha-blockers.
The crude HR of NOF was lower for alpha-blockers users [ HR , 0.37; 95% CI , 0.11–1.00, [Table 2].
Alpha-blockers have the potential to increase the risk of falls in the elderly (American Geriatrics Society 2012 Beers Criteria Update Expert Panel, 2012).
Some physicians combine Proscar with alpha-blockers. "There's evidence that the two together may not only improve BPH symptoms, but also slow the progression of the disease and reduce the need for surgery in the future," says Wilt.
Follow-up data 1 st 4 th year 7 th year year Urethrotomy (n) M-TUR - 2(3.07%) 3(4.61%) P-TUR - 3 (5.08%) 5 (8.47%) p value - 057 0.38 Alpha-blocker therapy (n) M-TUR - 7(10.7%) 11 (16.92%) P-TUR - 6(10.1%) 9(15.25%) p value - 0.91 0.80 Re-operation (n) M-TUR - 3(4.61%) 6 (9.23%) P-TUR - 2(3.38%) 5 (8.47%) p value - 0.73 0.95 M-TURP: Monopolar-Transurethral resect ion of the prostate; P-TURP: Plasmaknetic-Transurethral resection of the proslate [FIGURE 1 OMITTED]
Safety issues and adverse events spectra differ considerably between the available alpha-blockers. Adverse side effects commonly reported with different alpha1 AR blockers include dizziness, headache, asthenia, postural hypotension, syncope, rhinitis, sexual dysfunction.
"After a year of medical therapy, you can try to withdraw the alpha-blocker and see if the prostate shrinkage can sustain the patient with reasonably good symptom scores and good urinary flow," Dr.
The first group consisted of patients receiving diclofenac sodium and an alpha-blocker, the second group of patients received diclofenac sodium and prednisolone, and the third group of patients received diclofenac sodium alone.
Its combination with an alpha-blocker is effective in improving irritative symptoms, and for select patients with BOO and concomitant detrusor overactivity.
Patients with pregnancy or lactation, history of previous surgery on the ipsilateral ureter, solitary kidney, urinary tract infection, moderate or severe hydronephrosis, currently on alpha-blocker therapy, known allergy to tamsulosin, contraindications for non-steroidal anti-inflammatory agents (e.g., gastritis) or renal insufficiency, were excluded.