Investment Alpha Beta Explained

In the realm of traditional finance, alpha represents a metric used to assess the active return of an investment relative to a market index. It provides insight into how well an investment performed compared to the average market return within a specific timeframe. For instance, an alpha of 10% indicates that the investment outperformed the market by 10% during that period. Conversely, a negative alpha indicates underperformance compared to the market. On the other hand, beta measures the volatility and relative risk of an investment. Alpha and beta are fundamental coefficients utilized in the capital pricing model, which forms an integral part of modern portfolio theory.