Glossary
Alpha
Alpha is the portion of an investment's return above or below what its market benchmark would have delivered for the same level of risk.
If a fund returns 9% while its risk-adjusted benchmark expectation was 8%, its alpha is roughly +1%. Positive alpha suggests skill or luck added value; negative alpha means the investor would have done better in the benchmark itself.
Why it matters in practice
Decades of fund research show persistent positive alpha is rare after fees, which is a core argument for low-cost index investing. When a manager advertises outperformance, the honest question is whether it is alpha — return beyond the risk taken — or simply extra risk that happened to pay off during the period measured.
Related terms: Beta · Index Fund · Passive Investing · Standard Deviation · Expense Ratio