#BinanceAlphaAlert Alpha (α) in finance measures an investment's excess return relative to a benchmark index, adjusted for risk. It evaluates a portfolio manager’s ability to outperform the market. Calculated using the Capital Asset Pricing Model (CAPM), alpha is the difference between actual returns and the expected risk-adjusted return:

α = Actual Return − [Risk-Free Rate + β×(Market Return − Risk-Free Rate)].

For example, if a fund with a beta (β) of 1.2 generates a 15% return versus a CAPM-predicted 11.6% (assuming a 2% risk-free rate and 10% market return), its alpha is 3.4%.Positive alpha indicates outperformance; negative alpha signals underperformance.

Importance: Alpha assesses active management skill. Consistently positive alpha suggests value addition beyond market exposure. However, fees can erode net alpha, and its reliance on historical data/benchmarks limits predictive power. Unlike beta (market risk), alpha focuses on manager-specific gains. While sought after in active strategies, efficient market hypotheses argue that sustained alpha is rare, favoring passive investing.Critical considerations include benchmark appropriateness and time-frame sensitivity.