What is 'alpha' in equity investing?

Alpha is an estimated value of a stock's expected excess return. Simply put, alpha is the difference between the investment return and the benchmark return (eg. NSE Nifty) or what the scheme generates over and above the returns of its benchmark in...

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1. Alpha is the measurement of investment performance as compared to an index such as S&P BSE Sensex of Nifty.

2. Alpha is an investment’s active return which is directly related to the investment decision.

3. Alpha will be zero if the investment performs in line with the benchmark.

4. If an investment has an alpha value of 1, this means that it has outperformed the comparison market index or benchmark by 1% and if it is -2, it means that the investment has underperformed by 2%.

5. Alpha is a key number to look at in active investment strategy.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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