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< Return to Glossary
 

Alpha

1. A measure of a mutual fund's risk relative to the market. The formula for alpha is the following:

[ (sum of y) - ((b)(sum of x)) ] / n

Where:
n = number of observations (36 mos.)
b = beta of the fund
x = rate of return for the market
y = rate of return for the fund

2. The abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the Capital Asset Pricing Model (CAPM).
(source: Investopedia.com)
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