Alpha

You must have seen ads on TV where daredevil actors perform death-defying stunts. At the end of such ads, there's usually a notice saying something like 'This film was shot with trained stuntmen, please don't try this yourself.' Well, guess what, calculating—and using—alpha is a little bit like that. We could just leave you with some arcane maths and imply that everyone who invests in funds can—and must—use concepts like alpha. But it isn't really so. We'll give you a basic understanding of the concept, enough to make sense of alpha when you do come across it, but as far as calculating alpha goes, as the TV Ads say, don't try this stunt at home. Alpha is part of what is called modern portfolio theory, a set of techniques that analyse in

This article was originally published on August 07, 2003.