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Finance Dictionary and Glossary of Investment Terms
Alpha
Definition 1.
1. A measure of risk, used for mutual funds with regards to their relation and the market. A positive alpha is the extra return awarded to the investor for taking a risk, instead of accepting the market return. The formula for alpha is:[ (sum of y) - ((b)(sum of x)) ] / n n =number of observations (36 mos.)b = beta of the fund x = rate of return for the markety = rate of return for the fund2. The abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the CAPM.
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