Alpha is used in finance as a measure of performance. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark, which is considered to represent the market’s movement as a whole. The excess return of an investment relative to the return of a benchmark index is the investment’s alpha. If it is a positive number, the manager or strategy is beating the benchmark.
Alpha is used for mutual funds and all types of investments. It is often represented as a single number (like 3 or -5), but this refers to a percentage measuring how the portfolio or fund performed compared to the benchmark index (i.e. 3% better or -5% worse). Alpha is also often referred to as “excess return” or “abnormal rate of return.”
Alpha is the risk-adjusted return of a strategy or portfolio in excess of the market index or other benchmark. It measures a manager's incremental return that cannot be attributed to market movements.