Glossary / Relative performance
Alpha
Alpha is how much better or worse something did than the market over the same stretch of time. If a stock rose 12% while the S&P 500 (the usual benchmark, tracked by the fund SPY) rose 8% over the same days, its simple alpha is +4%. A stricter version first adjusts for beta — how much the stock usually swings when the market moves — before subtracting.
How it is measured
How is alpha measured?
Measure the return over a defined window. Measure the benchmark's return over that identical window. Subtract. The stricter version multiplies the benchmark return by the holding's beta first, so that a security which simply moves more than the market is not credited for the extra movement. Both the window and the benchmark are choices, and changing either changes the answer.
Why it matters
Why does alpha matter to a swing trader?
Alpha is the vocabulary for 'did this do anything the market did not already do', which is the only version of the question that survives a market-wide move up or down. The measurement caution for a swing trader is that alpha over a single short window is mostly noise — one session's difference against a benchmark tells you almost nothing, and the number stabilises only across a large sample.
In Tapeline
Does Tapeline use alpha?
Not as an input to the score. The closest check is strength vs the market, which compares a stock's price move with the whole market's.
Related
See this in the product
Related terms
Back to the full glossary.
General information about market vocabulary, written to be descriptive rather than prescriptive. Not investment advice — see the risk disclosure.