Alpha is the portion of return that can't be explained by market movement alone. Positive alpha means an investor or fund outperformed on a risk-adjusted basis; negative alpha means underperformance.
Persistent positive alpha net of fees is rare, which is one reason low-cost index funds have grown so much: most active managers deliver negative alpha over long periods.
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Open Decision Lab →Frequently asked questions
How is alpha calculated?
Alpha = actual return − (risk-free rate + beta × (market return − risk-free rate)).