1

alpha

noun al·pha \ ˈal-fə \
Updated on: 13 Oct 2017

Definition of alpha

1 :the 1st letter of the Greek alphabet — see Alphabet Table
2 :something that is first :beginning
5 :the first version of a product (such as a computer program) that is being developed and tested usually used before another noun
  • alpha versions
  • alpha testing
; also :a stage of product development in which alpha prototypes are released
  • a product that is available in alpha
— compare beta

Examples of alpha in a Sentence

  1. money is not the alpha and omega—the beginning and end—of life's purpose

Recent Examples of alpha from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'alpha.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of alpha

Middle English, from Latin, from Greek, of Semitic origin; akin to Hebrew āleph aleph

Other Alphabet Terms


2

alpha

adjective

Definition of alpha

1 :closest in the structure of an organic molecule to a particular group or atom symbol α
  • α-substitution
2 :socially dominant especially in a group of animals
  • an alpha male

Recent Examples of alpha from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'alpha.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of alpha

1842

Other Alphabet Terms


Financial Definition of ALPHA

alpha

What It Is

The definition of alpha on InvestingAnswersAlpha, also known as "excess return" or "abnormal rate of return," is one of the most widely used measures of risk-adjusted performance. The number shows how much better or worse a fund performed relative to a benchmark. This difference is then attributed to the decisions made by the fund's management.

How It Works

Let's assume you are a portfolio manager who expects your client's portfolio to return 15% next year. The year goes by and the portfolio actually returns 16%. In its most basic sense, the alpha of the portfolio = 16% - 15% = 1%.

Mathematically speaking, alpha is the rate of return that exceeds what was expected or predicted by models like the capital asset pricing model (CAPM). To understand how it works, consider the CAPM formula:

r   =   R{inf}f{/inf}  + beta * (R{inf}m{/inf} - R{inf}f{/inf} )   +   alpha

where:
r = the security's or portfolio's return
R{inf}f{/inf}  = the risk-free rate of return
beta = the security's or portfolio's price volatility relative to the overall market
R{inf}m{/inf}  = the market return

The main part of the CAPM formula (except the excess-return factor) calculates what the rate of return on a certain security or portfolio ought to be under certain market conditions. Note that two similar portfolios might carry the same amount of risk (same beta) but because of different alphas, it's possible for one to generate higher returns than the other. This is a fundamental quandary for investors, who always want the highest return for the least amount of risk.

Why It Matters

The fundamental quandary for investors of how get the highest return possible for the least amount of risk can be measured by alpha. It is a measurable way to determine whether a manager's skill has added value to a fund on a risk-adjusted basis.

The very existence of alpha is controversial, however, because those who believe in the efficient market hypothesis (which says, among other things, that it is impossible to beat the market) attribute alpha to luck instead of skill, and base this belief on the fact that most managers fail to beat the market over the long-term.



ALPHA Defined for English Language Learners

alpha

noun

Definition of alpha for English Language Learners

  • : the first letter of the Greek alphabet

  • : the first version of a product (such as a computer program) that is being developed and tested


alpha

adjective

Definition of alpha for English Language Learners

  • : having the most power in a group of animals or people


Medical Dictionary

1

alpha

noun al·pha \ ˈal-fə \

medical Definition of alpha

1 :the 1st letter of the Greek alphabet symbol Α or α

2

alpha

adjective
variants: or α-

medical Definition of alpha

1 :of or relating to one of two or more closely related chemical substances
  • the alpha chain of hemoglobin
  • α-yohimbine
used somewhat arbitrarily to specify ordinal relationship or a particular physical form, especially one that is allotropic, isomeric, stereoisomeric, or sometimes polymeric (as in α-D-glucose)
2 :closest in position in the structure of an organic molecule to a particular group or atom; also :occurring at or having a structure characterized by such a position
  • α-substitution

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