Alpha Generator

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Abnormal Return

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

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

    1. A measure of performance on a risk-adjusted basis. Alpha takes ...
  4. Excess Returns

    Investment returns from a security or portfolio that exceed a ...
  5. Benchmark

    A standard against which the performance of a security, mutual ...
  6. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
Related Articles
  1. Find The Highest Returns With The Sharpe ...
    Bonds & Fixed Income

    Find The Highest Returns With The Sharpe ...

  2. Adding Alpha Without Adding Risk
    Options & Futures

    Adding Alpha Without Adding Risk

  3. Understanding Volatility Measurements ...
    Mutual Funds & ETFs

    Understanding Volatility Measurements ...

  4. Modern Portfolio Theory: Why It's Still ...
    Active Trading

    Modern Portfolio Theory: Why It's Still ...

comments powered by Disqus
Hot Definitions
  1. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  4. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  5. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center