
Alpha
In finance, Alpha is a measure of performance on a risk-adjusted basis. It measures the amount by which an investment outperforms or underperforms a benchmark index, such as the S&P 500. Alpha is the excess return of an investment relative to the return of a benchmark index.
The formula for alpha is: Alpha = (Actual return - Expected return) / (Risk of the investment)
For example, if a fund has a 5% return and the S&P 500 has a 3% return, then the alpha for the fund is 2%.
Alpha can be used to compare different investments and determine which ones have the highest expected return given their level of risk.