Alpha

Alpha, in the context of investing, refers to the abnormal rate of return generated by a portfolio or investment strategy beyond what would be expected based on its risk level. It measures the excess return earned over the benchmark or market index. For example, if a mutual fund generates a return of 10% while the benchmark index returns 8%, the alpha of the fund would be +2%. A positive alpha suggests that the investment outperformed the market or benchmark, while a negative alpha indicates underperformance. In summary, alpha captures the skill or investment strategy's ability to deliver returns above or below what is predicted by market movements, providing insight into the investment manager's ability to add value.