What does alpha mean in portfolio management?

Alpha refers to excess returns earned on an investment above the benchmark return when adjusted for risk. Active portfolio managers seek to generate alpha in diversified portfolios, with diversification intended to eliminate unsystematic risk.

What does alpha mean in investing?

Because alpha represents the performance of a portfolio relative to a benchmark, it is often considered to represent the value that a portfolio manager adds to or subtracts from a fund’s return. In other words, alpha is the return on an investment that is not a result of a general movement in the greater market.

What is a pure alpha portfolio?

Some strategies that exemplify the definition of pure alpha are statistical arbitrage, equity neutral hedged strategies and selling liquidity premiums in the fixed-income market. Some portfolio managers use their alpha portfolios to buy individual equities. This method is not pure alpha, but rather the manager's skill in equity selection.