Alpha Definition

Learn the definition of alpha and other ETF terminology from the etf.com glossary.

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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

Learn more about Alpha

In investing, alpha represents the excess return of an investment or a portfolio over its expected or required rate of return, given its level of risk as measured by a benchmark. A positive alpha indicates that the investment performed better than its beta predicts, while a negative alpha indicates that it underperformed. Alpha is a key metric for evaluating the performance of actively managed ETFs, as it measures the manager's ability to add value to the portfolio.

Related terms

Beta, Smart Beta, ETF,  Benchmark, Active Management

ETF Glossary is etf.com’s collection of key terms and definitions related to exchange-traded funds. ETFs are investment funds that are traded on stock exchanges, and they can encompass a wide range of asset classes, including stocks, bonds, commodities and more. Given the diverse range of ETFs and the complexity of financial markets, having a clear understanding of ETF-related terminology is instrumental for investors looking to make informed decisions, manage risks effectively and navigate the evolving landscape of ETF investments.