The formula for calculating Alpha is Actual Return minus Expected Return OR the Benchmark 🧮

But, since we’re subtracting things, Alpha might not always be positive. . . 🫢

In fact, Alpha can be positive, negative, or even zero! 🤯

Let’s explore what each of these could mean ✏️

A positive Alpha means that the actual return was greater than the expected or benchmark 🗯️

This means the stock has fantastic returns 🥳

Many investors will describe a stock with positive Alpha, as something that has “outperformed” the market 💪 since it’s doing better than the benchmark!

On the flip side. . . 😥

Negative Alpha = a stock has done worse than expected, or "underperformed" ❤️‍🩹

Lastly, a zero Alpha is the strangest case and is rare! 👀

Zero Alpha means that there was no difference between the Actual Return and the Expected/Benchmark Return 😮

So, A zero alpha stock has exactly matched expectations. 🤝

For a quick recap 🥁

Positive = Overperformed. Zero = Matched expectations. Negative = Underperformed.

So, now you know the different signs of Alpha and what they mean 🥳