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Alpha is a measure of the active return on an investment, the performance of that investment compared with a suitable market index.An alpha of 1% means the investment's return on investment over a selected period of time was 1% better than the market during that same period; a negative alpha means the investment underperformed the market.
You can’t earn alpha by investing in a benchmark index fund such as an S&P 500 index fund, which is the definition of beta. Bottom line. While alpha and beta might sound like complex and ...
Alpha investing aims to beat the benchmark, while beta investing focuses on how volatile an asset is compared to the market. Alpha vs. beta: Understanding the differences and they work in ...
Portable alpha is an investment strategy in which portfolio managers separate alpha from beta by investing in securities that are not in the market index from which their beta is derived. Alpha is the return on investment achieved over and above the market return—beta—without taking on more risk. In simple terms, portable alpha is a ...
Viewed from the implementation side, investment techniques and strategies are the means to either capture risk premia (beta) or to obtain excess returns (alpha). Whereas returns from beta are a result of exposing the portfolio to systematic risks (traditional or alternative), alpha is an exceptional return that an investor or portfolio manager ...
What investors should know about alpha and how it is generated.
The direct alpha formula is derived from the definition of in Modern portfolio theory. We define , the rate of return, as the sum of a market return plus an alpha : = + in the scope of direct alpha, we consider that r(t) and b(t) are continuous rate.
The information ratio is often annualized. While it is then common for the numerator to be calculated as the arithmetic difference between the annualized portfolio return and the annualized benchmark return, this is an approximation because the annualization of an arithmetic difference between terms is not the arithmetic difference of the annualized terms. [6]