Alpha is a relative concept, a comparison of an investment return at risk-free return. Alpha=0, indicates that the return is the same as the risk-free return; alpha>0, indicates excess return; alpha<0, the return is lower than the risk-free return. The pursuit of maximum alpha is the so-called pursuit of maximum excess returns.

So what is risk-free return? Simply put, it is the natural value-added, or decay rate, of the entire market. It can be said that the increase in the total circulating market value of the Shanghai and Shenzhen stock markets within a period of time divided by the total circulating market value at the beginning of time is the investment return during this period (can be positive or negative). Why is it called risk-free? It refers to the benefits brought by changes in the market itself as long as you invest a fixed amount without any operation. Index funds can be regarded as an investment that is very close to risk-free returns. It is completely passively operated. The alpha value is less than 0, but very close to 0. Of course, different tracking indexes themselves are somewhat different from the overall market. This year, the return of the Shenzhen Stock Exchange 100 Index is higher than the average return of the entire market, alpha>0. The so-called alpha investment is to obtain excess returns through stock selection and industry selection. Currently, funds that have proposed the concept of alpha include Shanghai Investment Alpha and Harvest Quantitative Alpha.

Another important indicator, beta refers to correlation. The ratio of an investment to the overall market (or selected reference indicator). Beta=1, which is completely correlated. The beta of the CSI 300 Index Fund should be very close to 1. The beta of the Shenzhen Stock Exchange 100 ETF in the first half of the year was slightly greater than 1, if the CSI 300 is used as a reference.

The so-called beta investment is reflected in position control. If the stock limit of a fund is 60%, then its beta relative to the entire market index will be very low, because the other 40% of investment and cash Or the correlation between bonds and the stock market is very low.

Beta investment does not focus on stock selection, but on position control, so when the market falls, the decline will be small. If you dare to take a short position in stocks and a full position in bonds, you may still get positive returns. If you choose a fund based on alpha and beta values, you should look at the balance between long-term performance and risk. The larger the alpha, the better the returns. With the same alpha, the smaller the beta value, the lower the risk. Morningstar.com provides reference alpha and beta values ??for funds that have been established for more than two years. Under the risk assessment project of each fund, the corresponding reference object is a specific fund index and the same type of performance.

Some examples:

The biggest difference between public funds and private equity is that the latter has flexible positions and pursues absolute returns; private equity funds with good performance in 2008 had stocks in the first three quarters The position is close to 0; most public funds maintain relatively high positions. Therefore, if a stock market decline can be predicted, selling all stock funds is the best beta strategy. However, most people do not have the time or ability to judge the turning point. If they plan to invest for a long time, they can screen funds through alpha and beta. Friends who plan to invest in funds for the long term can look at the risk assessment of the non-index funds you hold for income, test the alpha strategy and beta strategy, and select funds with high investment returns and low investment risks.

Let me add an example:

1. If the index can be traded, you buy the CSI 300 Index worth 1 million and hold it all the time. This is a beta strategy. Because what you earn is the income generated by market fluctuations.

2. You spent 1 million to buy 20 stocks. These stocks performed well and earned 20% more than strategy 1. Then this 20% is alpha gain. The returns of these 20 stocks come from market returns (beta) + excess returns (alpha). This is an "exponentially enhanced strategy" in the popular sense.

3. Based on Strategy 2, assuming that the average volatility of the 20 stocks you bought is consistent with the volatility of the Shanghai and Shenzhen 300 Index (the beta of the stocks you hold relative to the index = 1), and you go short again If you buy CSI 300 futures worth 1 million, it is equivalent to (strategy 2-strategy 1), and what you get is (beta+alpha-beta)=alpha. This is a "fully" hedged alpha strategy.