Alpha

What is Alpha?

Alpha is the intercept of the linear regression comparing a risky asset's excess returns, ${R_i-R_f}$ and a market portfolio's excess returns $(R_M-R_f)$:

$$(R_i-R_f)=\alpha+\beta*(R_M-R_f),\; where \;R_f\; is\; the\; riskless\; rate.$$

A graph demonstrating an example of alpha.