Alpha and beta are two key coefficients in the capital asset pricing model used in modern portfolio theory. An asset’s exposure to unsystematic risk is measured by its beta (β), indicating whether it is more volatile than the market or less. The excess return of an investment relative to the return of a benchmark index is the investment’s alpha (α).

“A practical way of thinking about beta is that it’s the kind of return that you can get on demand,” says Theodore Enders, portfolio strategist at Goldman Sachs Asset Management. “Alpha is more complex, because it can be identified only with hindsight.”..

BL Premium

This article is reserved for our subscribers.

A subscription helps you enjoy the best of our business content every day along with benefits such as articles from our international business news partners; ProfileData financial data; and digital access to the Sunday Times and Sunday Times Daily.

Already subscribed? Simply sign in below.

Questions or problems? Email or call 0860 52 52 00. Got a subscription voucher? Redeem it now