Alpha
Investment performance above a stated benchmark or model-implied return, whose meaning depends on the calculation used.
Benchmark-relative performance concepts covering active return, model-based alpha, tracking error, and information ratio.
Alpha, tracking error, and information ratio describe different parts of benchmark-relative performance. Alpha measures value added under a stated benchmark or model, while Tracking Error measures the variability of periodic active returns.
The Information Ratio combines average active return and tracking error into a relative-efficiency measure. Jensen’s Alpha instead compares return with a CAPM-implied result, and Alpha Generation examines the research and implementation process behind active value added.
These measures require aligned return observations, a suitable benchmark, consistent gross- or net-of-fee treatment, and clear annualization. None proves skill or suitability on its own.
This section is for financial education and does not recommend a manager, fund, benchmark, or strategy.
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Investment performance above a stated benchmark or model-implied return, whose meaning depends on the calculation used.
Process of seeking benchmark- or model-relative investment value through research, portfolio construction, and implementation.
Benchmark-relative performance ratio comparing mean active return with the volatility of active return, called tracking error.
CAPM-based performance measure comparing portfolio return with the return implied by its estimated market beta.
Standard deviation of periodic portfolio-minus-benchmark returns, used to measure benchmark-relative or active risk.