Alpha is the amount of return an investment produces above what you would expect based on its risk level. Positive alpha means an investment outperformed expectations, while negative alpha means it underperformed. Alpha is often used to evaluate how skillfully a fund manager or investor performs.
If a stock with a beta of 1 is expected to match the market return of 8 percent but actually returns 12 percent, it has generated 4 percent of alpha. This suggests the stock or its manager performed better than market conditions alone would have predicted.
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