Definition: Alpha is an estimated numeric value of a stock's expected excess return that cannot be attributed to the market's volatility, but may be due to some other security.

Description: In other words, it is the difference between the investment return and the bench mark return (for e.g. S&P 500). It is one out of the five technical risk ratios which help the investor to determine the risk reward portfolio of a mutual fund.

Statistically, an alpha is generated by regressing a stock's excess return on benchmark excess return. Alpha is an intercept. For example, if a stock has an alpha of 1.20, that means analysts expect 20% increase in the stock's price, not being affected by market fluctuations. Fundamental investors always want an alpha to be positive and beta to be zero.