Alpha Generator


DEFINITION of 'Alpha Generator'

Any security that, when added to an existing portfolio of assets, generates excess returns or returns higher than a pre-selected benchmark without additional risk. An alpha generator can be any security; this includes government bonds, foreign stocks, or derivative products such as stock options and futures.

BREAKING DOWN 'Alpha Generator'

Keep in mind that alpha itself measures the returns a portfolio produces in excess of the return originally estimated by the capital asset pricing model, on a risk-adjusted basis. Therefore, an alpha generator adds to portfolio returns without adding any additional risk, as measured by volatility or downside volatility. This follows modern portfolio theory in allowing investors to maximize returns while keeping a certain level of risk.

  1. Benchmark

    A standard against which the performance of a security, mutual ...
  2. Alpha

    Alpha is used in finance to represent two things: 1. a measure ...
  3. Excess Returns

    Investment returns from a security or portfolio that exceed a ...
  4. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  5. Abnormal Return

    A term used to describe the returns generated by a given security ...
  6. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected ...
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