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. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  2. Modern Portfolio Theory - MPT

    A theory on how risk-averse investors can construct portfolios ...
  3. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  4. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta ...
  5. Federal Debt

    The total amount of money that the United States federal government ...
  6. Abnormal Return

    A term used to describe the returns generated by a given security ...
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 ...

Hot Definitions
  1. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  2. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  3. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  4. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
Trading Center