What is the difference between alpha and beta in investing?

All of this said, the downside of alpha and beta in investing is that both measure past performance, which might not hold going forward. Alpha requires a track record for greater accuracy, whereas beta tends to better assess short-term risk given that the volatility of an asset can change on a dime. How are alpha and beta calculated?

What is alpha & beta?

Alpha and beta are two of the key measurements used to evaluate the performance of a stock, a fund, or an investment portfolio. Alpha measures the amount that the investment has returned in comparison to the market index or other broad benchmark that it is compared against. Beta measures the relative volatility of an investment.

Why do investors use alpha & beta?

Investors use alpha to identify investments that have consistently outperformed their expected returns, adjusting for risk. Alpha and beta are fundamental concepts in finance that help investors measure and understand the performance and risk of investments relative to the broader market.