What is investment alpha?
Investment alpha refers to a measure of the active return on an investment compared to a market index or a benchmark. The measurement represents the excess return that’s generated by an investment or a portfolio manager above the return of the benchmark, and is typically used as a judge of how well someone or something is “beating the market”.
This measure helps investors and portfolio managers assess the performance of an investment strategy. A positive alpha indicates that the investment has outperformed the benchmark, which suggests that the strategy is effective. A negative alpha, on the other hand, indicates underperformance compared to the benchmark, which suggests that the investment did not achieve returns commensurate with the market risk.