What is Alpha in stock markets?

Alpha is a financial measure which measures performance. It is often seen as an active return on investment and is the difference between investment and benchmark return. It is an estimated numeric value of an expected excess return of a stock relative to the return on benchmark index depending on the volatility in the market.

It is used for mutual funds and other investments and is represented as a single number. It is used in union with beta which is a measure of the volatility of risk. It is also known as the excess return or abnormal rate of return. It is thus, one of the five ratios which help the investor to determine the risk-reward portfolio of the mutual fund.