Alpha measures investment performance relative to a benchmark index (usually S&P 500), representing excess returns after adjusting for market risk.

Positive alpha (+3%) means the investment beat the market by 3% after accounting for risk, while negative alpha (-2%) means it underperformed by 2%.

Alpha reveals manager skill—a fund with +5% alpha consistently demonstrates superior stock selection or timing, while 0% alpha indicates no added value beyond index fund performance.

Calculated as: Actual Return - (Risk-Free Rate + Beta × Market Risk Premium).

Beta measures a stock's volatility relative to the overall market (S&P 500 = beta of 1.0).

Beta > 1.0 (e.g., 1.5) means the stock is 50% more volatile than the market—if S&P rises 10%, stock tends to rise 15%; if S&P drops 10%, stock drops 15%.

Beta < 1.0 (e.g., 0.7) indicates 30% less volatility—defensive stocks like utilities often have beta 0.5-0.8.

Beta = 0 means no correlation to market (e.g., gold sometimes).

High beta stocks (1.2-2.0) offer higher return potential but greater downside risk during corrections.