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.
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.

Standard Deviation
1. A measure of the dispersion of a set of data from its mean. ... 
Type I Error
A type of error that occurs when a null hypothesis is rejected ... 
Hypothesis Testing
A process by which an analyst tests a statistical hypothesis. ... 
Mean
The simple mathematical average of a set of two or more numbers. ... 
Monte Carlo Simulation
A problem solving technique used to approximate the probability ... 
Type II Error
A statistical term used within the context of hypothesis testing ...

Investing Basics
What Are The Odds Of Scoring A Winning Trade?
Just because you're on a winning streak doesn't mean you're a skilled trader. Find out why. 
Home & Auto
Insure Your Future With A Career As An Actuary
If you've got excellent math skills, they can add up to a lucrative career as an actuary. 
Fundamental Analysis
Financial Markets: Random, Cyclical Or Both?
Are the markets random or cyclical? It depends on who you ask. Here, we go over both sides of the argument. 
Mutual Funds & ETFs
5 Ways To Measure Mutual Fund Risk
These statistical measurements highlight how to mitigate risk and increase rewards. 
Options & Futures
Adding Alpha Without Adding Risk
Learn how to generate higher returns in your portfolio while keeping the same risk profile. 
Charts & Patterns
Why These Could Be 2015's 10 Best Biotech Stocks
A quick look at a 10 biotech companies that are poised to deliver for shareholders in 2015. 
Mutual Funds & ETFs
How To Build A Bond Ladder?
Bond laddering is a strategy used when building a portfolio: an investor can spread out interest rate risk and create a stream of cash flows for income. 
Fundamental Analysis
What is a Null Hypothesis?
In statistics, a null hypothesis is assumed true until proven otherwise. 
Charts & Patterns
Why These Could Be 2015's 10Best Media Stocks
A list of toptier and speculative media stocks for 2015. 
Investing
Why Is The Nasdaq 5,000 Different This Time?
The Nasdaq this week has slipped below the 5,000 highwater mark it reached last week. The last time it hit above 5,000 was in March 2000.