A friend asks you how to explain the difference between alpha and beta in portfolio management. What would you tell them?

1. Alpha measures the value the fund manager adds to the performance of the fund managed while beta measures the sensitivity of a fund to movements in the overall stock market 2. Alpha measures the ex-ante sensitivity of a fund to movements in the overall stock while beta measures the ex-post sensitivity 3. A beta above 1 is preferred during the contraction phase 4. An alpha above 1 indicates the manager has added value to the portfolio

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