Alpha Coefficient

In a traditional financial context, the alpha Coefficient is a measure of an investment’s active return relative to a market index. For example, an alpha of 10% indicates that an investment’s return over a specific time period outperformed the market by 10%, whereas a negative alpha indicates that the investment underperformed the market. In contrast, beta measures an investment’s volatility and provides an indication of its relative risk. Alpha and beta are two key coefficients in the capital pricing model used in modern portfolio theory.