Alpha (or Alfa) + Beta
Alpha describes outperformance in a market. If someone “drops alpha,” it means they have info that can give investors an edge over the market to get a higher return than the benchmark (beta).
Beta means average returns on the market. It is used as a benchmark to determine if you are outperforming the market.
Examples of Usage
- “You want to compete against less-skilled investors because you have alpha.”
- “Our line-up includes more than 20 mutual funds in different industries, asset classes and six strategic beta ETFs and four active ETFs”.
Note: Beta, in this case, means that this investment aims to perform as well as the overall market.
In the financial world, alpha is a measure of the performance of an investment portfolio relative to a chosen benchmark, usually a stock index, such as the S&P 500. It is one of the best ways to measure which investor managed to “beat” the market over a specific period. The alpha can be positive or negative, depending on how close it is to the price.
A beta coefficient is a measurement tool used to determine the volatility of an asset concerning the volatility of the overall market or a particular portfolio.