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What Does Alpha Mean in Investing?

By Lee SamahaUpdated Feb 25, 2025 at 11:35 PM

Key Points

  • Alpha measures if a manager's skill, not luck, adds investment value beyond market returns.
  • Understanding alpha helps investors avoid paying for market risk (beta) that can be managed independently.
  • Alpha calculation adjusts a portfolio's return by risk-free rate and market risk, revealing true skills.

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