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Definition of 'Alpha Risk'
The risk in a statistical test that a null hypothesis will be rejected when it is actually true. This is also known as a Type I error. The best way to decrease alpha risk is to increase the size of the sample being tested with the hope that the larger sample will be more representative of the population.
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Investopedia explains 'Alpha Risk'
An example of alpha risk in finance would be if one wanted to test the hypothesis that the average yearly return on a group of equities was greater than 10%. So the null hypothesis would be if the returns were equal to or less that 10%. In order to test this, one would compile a sample of equity returns over time and set the level of significance. If, after statistically looking at the sample, you determine that the average yearly return is higher than 10%, you would reject the null hypothesis. But in reality, the average return was 6% so you have made a type I error. The probability that you have made this error in your test is the alpha risk. This alpha risk could lead you to invest in a group of equities when the returns do not actually justify the potential risks.
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Search results for 'Alpha Risk'
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http://www.investopedia.com/articles/08/risk.asp
... In their quest for excess returns, active managers expose investors to alpha risk -
the risk that their bets will prove negative rather than positive. ...
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http://www.investopedia.com/articles/optioninvestor/06/addingalpha.asp
Adding Alpha Without Adding Risk. March 17 2011 | Filed Under » Active Trading,
Bonds, Derivatives, Futures, Options. There are many ...
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http://www.investopedia.com/articles/mutualfund/112002.asp
... commonly used indicators. Alpha Alpha is a measure of an investment's
performance on a risk-adjusted basis. It takes the volatility ...
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http://www.investopedia.com/articles/financial-theory/08/deeper-look-at-alpha.asp
... and because a diversified portfolio's main source of risk is market risk (or systematic
risk), beta is an appropriate measure of that risk. Alpha is used to ...
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http://www.investopedia.com/articles/07/alphabeta.asp
... SEE: Adding Alpha Without Adding Risk The ABCs Before we start, you'll need to
understand a few key terms and concepts, namely alpha, beta, systematic risk and ...
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http://www.investopedia.com/articles/retirement/08/IRA-alpha.asp
... Alpha is a risk-adjusted measure of performance. It takes the volatility of a mutual
fund and compares its risk-adjusted performance to a benchmark index. ...
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http://www.investopedia.com/articles/trading/09/offset-risk-options-futures-hedge-funds.asp
... By investing part of one's assets into these vehicles, it will diversify the source
of alpha, at the same time hedging the systematic risk from that portion of ...
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http://www.investopedia.com/articles/financial-theory/09/ICAPM-and-CAPM.asp
... But this calculation may be misleading active managers touting positive alpha
strategies may be taking excessive risk that is not captured in their ...
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http://stocks.investopedia.com/stock-analysis/2010/All-Of-The-Alpha-None-Of-The-Beta-SYY-CMCSA-BNI-CNI-CROX0622.aspx
... All Of The Alpha, None Of The Beta. ... (Beta says something about price risk,
but how much does it say about fundamental risk factors? ...
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http://www.investopedia.com/exam-guide/finra-series-6/evaluation-customers/risk-reward.asp
In this section: Measuring Portfolio Risks, Risk Measures (Alpha, Beta, Sharpe
Ratio), Asset Allocation, Risk Tolerance and Time Horizon. ...
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