Alpha(α) in Finance

In finance, alpha (α) measures the performance of an investment or portfolio relative to a benchmark, like a market index. It indicates the excess return generated by the portfolio beyond what would be expected based on its level of risk. A positive alpha means the investment has outperformed the benchmark after accounting for risk, showcasing skill or added value; a negative alpha indicates underperformance. In essence, alpha helps investors assess whether a fund manager or strategy is truly adding value through active management rather than just tracking market movements.