The alpha and beta of a manager vs. a benchmark are obtained by fitting a straight line to the points in a scatter plot of the market returns vs. the manager's returns. Alpha is the intercept of this straight line, while beta is the slope. Hence, if the market returns change by some amount x, then the manager returns can be expected to change by Beta * x.

Alpha is the mean of the excess return of the manager over beta times benchmark:

mean(i = 1, ... , m)( mi - Beta * bi )

Alpha is a measure of risk (beta)-adjusted return.

StyleADVISOR includes two Alpha and Beta statistics: Alpha and Beta and Cash-Adjusted Alpha and Beta. The Cash-Adjusted Alpha and Beta, which are the most commonly used, subtract the risk-free rate from the returns of both the manager and benchmark. Otherwise, the formulas are the same.

To view our quick tip video on Alpha, click the following link:  http://www.styleadvisor.com/sites/default/files/quick_tip_video/alpha_wm....