Alpha coefficient is the difference between the absolute return of investment or fund and the expected risk return calculated according to beta coefficient. Simply put, the difference between the actual risk return and the average expected risk return is the α coefficient.

α coefficient

Definition:

α coefficient is the difference between the absolute return of investment or fund and the expected risk return calculated according to β coefficient. Absolute return or excess return is the actual return of the fund/investment minus the risk-free investment return (in China, it is the return of 1 year bank time deposit). Absolute return is used to measure the investment technology of investors or fund managers. The product of Expected Return beta coefficient β and market return reflects the return of an investment or fund due to the overall changes in the market (please refer to CAPM for more calculation of expected return).

In a word, the difference between the actual risk return and the average expected risk return is the α coefficient.