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Definition: Alpha

Alpha is used to evaluate the return on an investment, it is a measure of the risk-adjusted return on an investment i.e. it is a measure of the return after compensating for the risk involved.

It can also be defined from the capital asset pricing model (CAPM).

It is the intercept of the Security Market Line (SML) and thus it conveys the performance of an investment compensating for the risk involved.

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