What Is Alpha?

Alpha is a term used in trading to indicate risk-adjusted performance. It is one of the 5 technical risk ratios (beta, standard deviation, Sharpe ratio, R-squared, alpha). Alpha is calculated by comparing the volatility of a fund or security to the risk-adjusted performance of a benchmark index. The alpha of the fund or security is the excess return compared to that of the index. For example, an alpha of +1.5 would mean that the fund or security has outperformed the benchmark index by 1.5%. When investing in a fund or asset, alpha is one of the most desirable attributes. Fundamental investors ideally want a market neutral portfolio (0 beta) with a high alpha. Investors must be careful that the returns they receive are not simply a byproduct of a portfolio with a high beta in a bull market, as this will cause them great losses during a bear market.

To learn more about this concept and become a master at valuation modeling, you should check out our Valuation Modeling Course. Learn more here.

Module 1: Introduction

Module 2: Valuation: The Big Picture

Module 3: Enterprise Value & Equity Value Practice

Module 4: Trading Comparables Introduction

Module 5: Trading Comps: The Setup

Module 6: Trading Comps: Spreading Nike (NKE)

Module 7: Trading Comps: Spreading Adidas (ADS.DE)

Module 8: Trading Comps: Spreading Lululemon (LULU)

Module 9: Trading Comps: Spreading Under Armour (UA)

Module 10: Trading Comps: Benchmarking and Outputs

Module 11: Precedent Transactions: Introduction

Module 12: Precedents: The Setup

Module 13: Spreading Tiffany & LVMH

Module 14: Spreading FitBit & Google

Module 15: Spreading Reebok & Adidas

Module 16: Spreading Jimmy Choo & Michael Kors

Module 17: Spreading Dickies & VF

Module 18: Valuation Wrap-Up

Module 19: Bonus: Non-GAAP Practice

Learn More Here

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