Saturday, January 8, 2011

Alpha Generator

An alpha generator is any type of security, which added to a portfolio generates excess returns without adding additional risk. Thus alpha generators are key elements in risk-return optimization i.e. producing the optimal return outcome for a given level of risk. Indeed alpha is a measure of risk adjusted return, it is the return over an above that estimated by the capital asset pricing model (CAPM). Alpha generators may be from the same, or different asset class to that of the existing portfolio.

Synonyms: Diversification, Risk-Return optimisation, Mean-variance optimization

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