The excess return of an investment relative to the return of a benchmark index. Positive alpha means the investment outperformed the benchmark, while negative alpha indicates underperformance. Generating consistent alpha is the primary goal of active fund managers and traders, and it is a key measure of investment skill versus passive index returns.
Example
“The hedge fund delivered 8% alpha over the S&P 500 this year, proving the manager's stock-picking strategy was effective.”