Alpha

Alpha is a term used in investing to describe a strategy’s ability to beat market or it’s “edge”. Alpha is the measure of portfolio performance under the condition that a portfolio is well-diversified to leverage unsystematic risk. Alpha represents the portfolio performance, it is always in comparison to a benchmark, under the assumption that the portfolio return on investment is not related to the market like the beta(systematic risk), but to the individual selection of the fund manager. Hence an alpha equal to zero simply means that the portfolio is perfectly correlated to the benchmark index.

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