What is Alpha
Definition: Alpha is an estimated numeric value of a stock's expected excess return that cannot be attributed to the market's volatility, but may be due to some other security.
Description: In other words, it is the difference between the investment return and the bench mark return (for e.g. NSE Nifty). It is one out of the five technical risk ratios which help the investor to determine the risk reward portfolio of the mutual fund.
Statistically, an alpha is generated by regressing a stock's excess return on benchmark (for example NSE Nifty) excess return. Alpha is an intercept. For example, if a stock has an alpha of 1.20, that means analysts expect 20% increase in the stock's price, not being affected by market fluctuations. Fundamental investors always want an alpha to be positive and beta to be zero.
Also See: Beta, Alpha, Volatility, Alpha Shares
