Alpha measures how much an investment beat (or trailed) what you would have expected from its risk alone. It is the "skill" portion of a return — the part not explained by simply riding the market up and down. Positive alpha means you did better than the risk you took would predict; negative alpha means worse.
Alpha is always measured against a benchmark (often a broad index like the S&P 500) and after accounting for how much market risk you carried — your beta. Example (illustrative): the market returns 10%, and a stock with a beta of 1.2 would "deserve" about 12% for the extra risk it carries. If it actually returned 15%, the roughly 3 percentage points above that expectation is its alpha. If it returned 9%, its alpha is negative — it underperformed the risk it took.
Beta measures how much an investment moves with the market — its market risk. Alpha measures the return earned above (or below) what that risk would predict. Beta is exposure; alpha is the leftover skill or luck.
Positive alpha is desirable, but over a small number of trades it can be pure luck. Alpha only becomes meaningful over a large sample and against a fair benchmark, after adjusting for risk.
Browse all S&P 500 tickers to see this metric applied to individual companies.
Educational research only — not investment advice.