What does Alpha and Beta signify? How are they applied?

Risk ratios

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Alpha : This is the excess return (out performance) a fund manager or a stock generates with respect to the benchmark.

For example if a fund generates a return of 17% and the Index (to which the fund is benchmarked) generates 15% for the same period, then the Funds’s Alpha is said to be 2%.

Beta on the other hand measures the sensitivity of the fund or the stock with respect to the market.

For example is a stock has a beta of 0.9, it means for every 1% move in the market the stock is expected to move by 0.9%. Likewise if the market moves down by 1%, the stock is expected to go down by 0.9%.