Trading & Pricing

Alpha

Returns above a benchmark — the part not explained by just holding the market

Category: Trading & Pricing Also known as: 4 Related terms: 2

Definition

Strategy returns minus benchmark returns (e.g. SPY for stocks, BTC HODL for crypto). Positive alpha = strategy beat the passive baseline. Negative = holding would have done better. Most active strategies show 0 or negative alpha after fees.

Context anchor

Hedge funds avg ~1-2% alpha/year (S&P 500 benchmark); ~85% of active funds show negative alpha after fees over 10y

Example

Signal D delivered +2.2% alpha vs SPY over 10 years

Also known as

alphaalpha edgeedgeoutperformance