Portable Alpha

AAA

DEFINITION of 'Portable Alpha'

A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index from which their beta is derived. Alpha is the return achieved over and above the return that results from the correlation between the portfolio and the market (beta). In simple terms, portable alpha is a strategy that involves investing in areas that have little to no correlation with the market.

INVESTOPEDIA EXPLAINS 'Portable Alpha'

Portfolio return is based on two aspects. The first is beta, which is the extent to which an investment vehicle moves with the market and can be said to represent passive returns, which occur as a result of an increase along with the overall market. The second is alpha, which is a measure of a manager's ability to generate returns by choosing stocks or other investments that will outperform the market in a given time period, and can be said to represent the returns generated by active-management techniques.

If a portfolio manager can improve alpha by investing in securities that are not correlated with the beta of an existing portfolio, that manager will have created a portable alpha.

RELATED TERMS
  1. Alpha

    1. A measure of performance on a risk-adjusted basis. Alpha takes ...
  2. Weighted Alpha

    A weighted measure of how much a stock has risen or fallen over ...
  3. Correlation

    In the world of finance, a statistical measure of how two securities ...
  4. Beta

    A measure of the volatility, or systematic risk, of a security ...
  5. Portfolio Manager

    The person or persons responsible for investing a mutual, exchange-traded ...
  6. Portfolio Management

    The art and science of making decisions about investment mix ...
Related Articles
  1. Bonds & Fixed Income

    Achieving Better Returns In Your Portfolio

    We look at three risk factors that best explain the bulk of equity performance.
  2. Investing Basics

    Beta: Gauging Price Fluctuations

    Learn how to properly use this measure that can help you meet your criteria for risk.
  3. Options & Futures

    Adding Alpha Without Adding Risk

    Learn how to generate higher returns in your portfolio while keeping the same risk profile.
  4. Investing Basics

    Online Portfolio Management, DIY or Fee-Based Financial Advisor: Which Is Right For You?

    Should you use an online financial planning service, or do professional, fee-based financial planners justify their higher costs?
  5. Chart Advisor

    A Total Stock Market ETF For Any Portfolio

    Utilizing index funds and ETFs, such as Vanguard's VTI, is one of the best ways for the average investor to track the broad markets and minimize fees.
  6. A Monte Carlo simulation allows analysts and advisors to convert investment chances into choices. The advantage of Monte Carlo is its ability to factor in a range of values for various inputs.
    Fundamental Analysis

    What Can The Monte Carlo Simulation Do For Your Portfolio?

    A Monte Carlo simulation allows analysts and advisors to convert investment chances into choices. The advantage of Monte Carlo is its ability to factor in a range of values for various inputs.
  7. Fundamental Analysis

    How do I judge a mutual fund's performance?

    Evaluate mutual fund performance utilizing resources such as Morningstar; compare the fund with others in its peer group to find the best mutual fund for you.
  8. Economics

    How A Limited Government Affects A Country's Finances

    Countries with limited governments have fewer laws about what individuals and businesses can and can’t do. What's the net result?
  9. Strategic asset allocation is a portfolio strategy that involves setting target allocations.
    Bonds & Fixed Income

    Strategic Asset Allocation

    Strategic asset allocation is a portfolio strategy that involves setting target allocations for various asset classes, then periodically rebalancing the portfolio back to the original allocations ...
  10. Personal Finance

    What is the average salary for an accountant?

    Learn about the average salaries of various accounting positions, and see the difference that an accounting degree makes in attaining higher wages.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center