What is Alpha

Alpha is a measure reflecting the performance of an investment or investment portfolio. It is often used interchangeably with "excess return" to reference atypical returns gained by a trader when his/her investment surpasses a benchmark market return. However, alpha can also be negative, implying that a portfolio or investment is performing poorly compared to the market. Alpha is the outcome of active investing, the careful consideration of portfolios by an agent regarding which investments to make. Alphas (rewards) are used jointly with Betas (risks) to make investment decisions.