What Is Alpha in Finance? Definition, Formula & Examples

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The Street

By TheStreet Staff What Is Alpha?The first letter in the Greek alphabet, alpha (α), has come to signify something of primary or significant importance. In finance, an investment with high alpha means that it has exceeded its benchmark. Alpha is a risk ratio that measures how well a security, such as amutual fund or even a stock, has performed relative to a market index, such as the S&P 500. Alpha is paired with beta (β), the second letter of the Greek alphabet, which measures an asset’s volatility. In mutual funds or other actively managed funds, alpha is viewed as an indicator of fund manager…

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