Alpha vs. Beta: What's the Difference? (2024)

Alpha vs. Beta: An Overview

Alpha and beta are two of the key measurements used to evaluate the performance of a stock, a fund, or an investment portfolio.

Alpha measures the amount that the investment has returned in comparison to the market index or other broad benchmark that it is compared against.

Beta measures the relative volatility of an investment. It is an indication of its relative risk.

Alpha and beta are standard calculations that are used to evaluate an investment portfolio’s returns, along with standard deviation, R-squared, and the Sharpe ratio.

Key Takeaways

  • Both alpha and beta are historical measures of past performances.
  • Alpha shows how well (or badly) a stock has performed in comparison to a benchmark index.
  • Beta indicates how volatile a stock's price has been in comparison to the market as a whole.
  • A high alpha is always good.
  • A high beta may be preferred by an investor in growth stocks but shunned by investors who seek steady returns and lower risk.

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What Is the Difference Between Alpha and Beta

Alpha

The alpha figure for a stock is represented as a single number, like 3 or -5. However, the number actually indicates the percentage above or below a benchmark index that the stock or fund price achieved. In this case, the stock or fund did 3% better and 5% worse, respectively, than the index.

An alpha of 1.0 means the investment outperformed its benchmark index by 1%. An alpha of -1.0 means the investment underperformed its benchmark index by 1%.If the alpha is zero, its return matched the benchmark.

Note, alpha is a historical number. It's useful to track a stock's alpha over time to see how it did, but it can't tell you how it will do tomorrow.

Alpha for Portfolio Managers

For individual investors, alpha helps reveal how a stock or fund might perform in relation to its peers or to the market as a whole.

Professional portfolio managers calculate alpha as the rate of return that exceeds the model's prediction or comes short of it. They use a capital asset pricing model (CAPM) to project the potential returns of an investment portfolio.

That is generally a higher bar. If the CAPM analysis indicates that the portfolio should have earned 5%, based on risk, economic conditions, and other factors, but instead the portfolio earned just 3%, the alpha of the portfolio would be a discouraging -2%.

Formula for Alpha:

Alpha=EndPrice+DPSStartPriceStartPricewhere:DPS=Distributionpershare\begin{aligned} &\text{Alpha} = \frac{ \text{End Price} + \text{DPS} - \text{Start Price} }{ \text{Start Price} } \\ &\textbf{where:}\\ &\text{DPS} = \text{Distribution per share} \\ \end{aligned}Alpha=StartPriceEndPrice+DPSStartPricewhere:DPS=Distributionpershare

Portfolio managers seek to generate a higher alpha by diversifying their portfolios to balance risk.

Because alpha represents the performance of a portfolio relative to a benchmark, it represents the value that a portfolio manager adds or subtracts from a fund's return. The baseline number for alpha is zero, which indicates that the portfolio or fund is tracking perfectly with the benchmark index. In this case, the investment manager has neither added nor lost any value.

Beta

Often referred to as the beta coefficient, beta is an indication of the volatility of a stock, a fund, or a stock portfolio in comparison with the market as a whole. A benchmark index (most commonly the S&P 500) is used as the proxy measurement for the market.Knowing how volatile a stock's price is can help an investor decide whether it is worth the risk.

The baseline number for beta is one, which indicates that the security's price moves exactly as the market moves. A beta of less than 1 means that the security is less volatile than the market, while a beta greater than 1 indicates that its price is more volatile than the market.

If a stock's beta is 1.5, it is considered to be 50% more volatile than the overall market.

Like alpha, beta is a historical number.

Beta Examples

Here are the betas for three well-known stocks on November 2021:

Micron Technology Inc. (MU):1.27
Coca-Cola Company(KO): 0.64
SPDR S&P 500 ETY (SPY):1.00

We can see that Micron was 27% more volatile than the market as a whole, while Coca-Cola was 36% less volatile than the broader market. The SPDRs, or SPYs, have a beta of 1.00 because this ETF itself tracks the S&P 500 index.

Acceptable betas vary across companies and sectors. Manyutility stocks have a beta of less than 1, while many high-tech Nasdaq-listed stocks have a beta of greater than 1. To investors, this signals that tech stocks offer the possibility of higher returns but generally pose more risks, while utility stocks are steady earners.

While a positive alpha is always more desirable than a negative alpha, beta isn’t as clear-cut. Risk-averse investors such as retirees seeking a steady income are attracted to lower beta. Risk-tolerant investors who seek bigger returns are often willing to invest in higher beta stocks.

Formula for Beta

Here is a useful formula for calculating beta:

Beta=CRVarianceofMarket’sReturnwhere:CR=Covarianceofasset’sreturnwithmarket’sreturn\begin{aligned} &\text{Beta} = \frac{ \text{CR} }{ \text{Variance of Market's Return} } \\ &\textbf{where:}\\ &\text{CR} = \text{Covariance of asset's return with market's return} \\ \end{aligned}Beta=VarianceofMarket’sReturnCRwhere:CR=Covarianceofasset’sreturnwithmarket’sreturn

  • Covarianceis used to measure the correlation in price moves of any two stocks.A positive covariance means the stocks tend to move in lockstep, while a negative covariance means they move in opposite directions.
  • Variance refers to how far a stock moves relative to its mean. It is frequently used to measure the volatility of a stock's price over time.
Alpha vs. Beta: What's the Difference? (2024)

FAQs

What is the difference between beta and alpha? ›

Beta is a measure of volatility relative to a benchmark, such as the S&P 500. Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations. Alpha and beta are both measures used to compare and predict returns.

Is it better to be beta or alpha? ›

While a positive alpha is always more desirable than a negative alpha, beta isn't as clear-cut. Risk-averse investors such as retirees seeking a steady income are attracted to lower beta. Risk-tolerant investors who seek bigger returns are often willing to invest in higher beta stocks.

Which is stronger beta or alpha? ›

Beta particles are more penetrating than alpha particles, but are less damaging to living tissue and DNA because the ionizations they produce are more widely spaced. They travel farther in air than alpha particles, but can be stopped by a layer of clothing or by a thin layer of a substance such as aluminum.

What is alpha vs beta in relationship? ›

At its most simplified, the alpha-beta dynamic is when one person calls the shots while the other follows along and submits. While this describes a complementary relationship of sorts (à la opposites attract), experts say it can create the exact opposite of a healthy partnership.

What is a beta person? ›

Beta. “A Beta is friendly, likes to be helpful, always tries to avoid conflict and wants to fit in,” Spencer explains, “and she is kind at the very core of who she is. She is driven by a need to help those around her, is loyal, and always puts her friends first but at the same time is more open to getting hurt.”

What is an alpha in a relationship? ›

When dating an alpha personality, there are many unique benefits and some concessions that their partner will have to consider. Tholen says an alpha personality often expects “to make unilateral decisions, seek the attention and acclaim of others, and assume that their wishes and desires will take priority.”

What is the difference between alpha and beta mindset? ›

And the answer is because when you are in alpha state, you are in control of your life. When you are beta state, you are in victim mentality. You're not showing up as your best version of yourself. You're showing up at the mercy of other people in your life.

What makes a man an alpha? ›

What Is an Alpha Male? An alpha male is a man who is highly intelligent, confident, and successful. Alpha males are generally considered great leaders and prefer to be in positions of power.

Is alpha the most powerful? ›

An Alpha Werewolf is the leader of a pack of werewolves. It is the strongest, most powerful and by far the most lethal variety of Werewolf. Alpha's are said to possess great power and wisdom.

Who is more powerful than alpha? ›

The alpha is the individual with the highest rank, who is usually the first to eat and the first to mate. Its subordinates correspondingly fall into four other categories, described in descending order of importance as beta, gamma, delta and omega.

What does it mean to be alpha? ›

Alpha refers to a dominant person or their behavior, especially with respect to socially aggressive, hyper-masculine men.

Can two alphas fall in love? ›

You'll enjoy the excitement of both being competitive, independent, and goal driven, and you'll both feel comfortable with taking charge and leading from the front. However, things can also become very challenging when two alphas fall in love.

What is an alpha personality? ›

Alpha personality traits are a selection of characteristics that include: A strong sense of self. Determination. Conviction in beliefs. Ambition and the desire to work hard.

What is alpha vs beta wife? ›

In a group of women, the Alpha is the one who exerts power and influence through her ability to take charge of the conversation, while the Beta will tend to listen and support. In the extremes of both, an Alpha may be too confrontational; a Beta may be too passive.

What is a beta female called? ›

beta female (plural beta females) A female that is second in a social or group hierarchy; subordinate to an alpha female but superior to an omega female quotations ▼ A woman who has stereotypically feminine traits, such as being gentle, nurturing, and emotional. quotations ▼

What is beta attitude? ›

He Tends Toward Introversion. The beta male is often introverted or reserved. He's not typically as outgoing as the alpha. He might not have as much to say, but he's always thinking. He's quietly assessing, and he plays the supporting role so well that he's often the silent backbone of any group.

What type of guy is a beta? ›

The term beta is used as a pejorative self-identifier among members of the manosphere, particularly incels, who do not believe they are assertive or traditionally masculine, and feel overlooked by women. It is also used to negatively describe other men who are not deemed to be assertive, particularly with women.

What is beta in relationship? ›

Beta is a slang insult for or describing a man who is seen as passive, subservient, weak, and effeminate.

What is an alpha female like in bed? ›

1) In The Bedroom …

An alpha woman has no problem making the first move. She's used to going after what she wants. Since men are usually the first to initiate sex, dating an alpha woman who is comfortable and confident with her sexuality is a change he'll appreciate. Men love it when a woman takes the time to initiate.

How do alpha females love? ›

She Is Loving and Supportive With Her Man

In a relationship, the alpha woman is extremely feminine. This means that she supports her man in every aspect of his life and she lets him take the lead in the relationship. She adds joy and passion to his life, while also letting him have all the space he needs.

Who is alpha woman? ›

An alpha female is a powerful and successful woman, often in a leadership role. Alpha females are often described as intimidating by men and women alike.

Are Alphas narcissist? ›

Certainly, an “Alpha male” figure can be self-centered but the terms “ Alpha male” and “narcissism” are not synonymous. Personal boundaries will determine a person's interest in remaining in a relationship with a man displaying “Alpha male” characteristics, especially if those characteristics are presented as harmful.

Are alpha males faithful? ›

Like all males, alpha males can be faithful, but it all depends on the woman's part. A woman who is with an alpha male has to enjoy being his woman. She has to accept him as the dominant male, stay loyal, and show more of her feminine side. Making him feel like the dominant male will earn his loyalty and love forever.

Do alpha males fall in love? ›

If you glow with confidence and determination, he'll look for a long-lasting romance with you. We'll share some tips on how to capture his heart so your favorite alpha male won't just chase you—he'll actually fall madly in love.

Who is better than alpha male? ›

These are the men at the top of the socio-sexual male hierarchy. However, there is a subset of males who are similar to alpha males but prefer to remain outside the hierarchy; they are known as sigma males.

What is the alpha male behavior? ›

An alpha male is typically described as the dominant and most influential member of a social group. He is strong, confident, assertive, and in control of his environment. He has the ability to lead, motivate and inspire those around him while maintaining a sense of power over his peers.

Who is better than an alpha? ›

The personality types alpha, beta, omega are quite different from each other. Alphas rank at the top of the socio-sexual hierarchy followed closely by beta. Whereas omegas rank at the bottom of the hierarchy.

What are the three types of males? ›

Types of Male Personalities
  • (2) Beta Male Personality. Qualities: Collaborative & Introvert. Your average 'Mr. ...
  • (3) Omega Male Personality. Qualities: Eccentric, Kinda Nerdy & Laid Back. ...
  • (4) Gamma Male Personality. Qualities: Adventurous, Fun-Loving & Restless. ...
  • (5) Delta Male Personality. Qualities: Aloof, Resentful & Private.
Sep 30, 2018

Are Alphas fearless? ›

Alphas are stereotypical leaders: confident and action-oriented, they blaze the path, lead the way, and “get stuff done.” Alpha Dogs are dynamic, fearless, charismatic, and accomplished. Almost every organization values and rewards Alpha Dogs.

What is a true alpha? ›

True Alpha describes the method by which a werewolf can attain the status of alpha werewolf without having to kill and take the status or inherit the status from another alpha. According to Dr. Deaton, the process by which a werewolf rises in status to alpha due to their own willpower and strength of character is rare.

How can you tell if someone is alpha? ›

The Alpha Female: 9 Ways You Can Tell Who is an Alpha Woman
  1. They Offer Fearless Leadership.
  2. They Possess High Emotional Intelligence.
  3. They Are Obsessive Learners.
  4. They Are Strong.
  5. They Are Sought Out.
  6. They Are Highly Ambitious.
  7. They Love Their Mommas (and Daddies)
  8. They Cultivate Harmony.

What does alpha mean in Bible? ›

Alpha and Omega, in Christianity, the first and last letters of the Greek alphabet, used to designate the comprehensiveness of God, implying that God includes all that can be. In the New Testament Revelation to John, the term is used as the self-designation of God and of Christ.

What is alpha and beta personality? ›

Alphas rank at the top of the socio-sexual hierarchy followed closely by beta. Whereas omegas rank at the bottom of the hierarchy. The key difference between alpha, beta, omega is that while alpha males are the leaders and don't lack confidence, beta males are the quiet, loyal followers.

What is the difference between alpha and beta female? ›

In a group of women, the Alpha is the one who exerts power and influence through her ability to take charge of the conversation, while the Beta will tend to listen and support. In the extremes of both, an Alpha may be too confrontational; a Beta may be too passive.

What is a beta male personality? ›

Beta males are fun, confident, and charismatic. They're also driven, and tend to be highly motivated. This makes them desirable as dating partners, and many women seek out betas as partners when they realize that they don't have the dating marketplace value to secure an alpha-male as a partner.

What is alpha in a relationship? ›

When dating an alpha personality, there are many unique benefits and some concessions that their partner will have to consider. Tholen says an alpha personality often expects “to make unilateral decisions, seek the attention and acclaim of others, and assume that their wishes and desires will take priority.”

What is a beta female? ›

Noun. beta female (plural beta females) A female that is second in a social or group hierarchy; subordinate to an alpha female but superior to an omega female quotations ▼ A woman who has stereotypically feminine traits, such as being gentle, nurturing, and emotional.

What is alpha vs beta in marriage? ›

For most relationships today, both partners need to have a balance of both masculine (alpha) and feminine (beta) traits, as well as an understanding of which one is their natural state. Each partner is equal, but different in a way that really adds to one another's strengths instead of enabling incompetency.

What is an alpha mindset? ›

An alpha male mindset is being confident and comfortable with yourself, having self-control, and staying in the moment, knowing you can handle anything. In 1000 BCE, the Greeks created their alphabet, with the first letter being alpha.

Can a woman be alpha? ›

Research on the human alpha female has focused primarily on leadership [7, 8, 10–13, 88, 89]. In this research women who hold a leadership position in student and business organizations are labelled “alpha female”, a “special kind of leader” [11].

Is it good to be an alpha female? ›

Well-respected: Along the way of inspiring others to be successful, alpha females become highly regarded by those around them. These personalities put out an aura that exudes conviction and encouragement, which, in turn, means other people respect them deeply for their dedication to everything they do and believe in.

Is it ok to be a beta? ›

Beta personality is not necessarily a bad personality trait. You need to remember that beta males are loyal, fierce, and an ally to others. Beta males may lack initiative and seek external validation, however, what others don't realize is that beta males are confident, friendly, and always value leadership.

What is an alpha male like in bed? ›

What is an alpha male like in bed? An alpha male is adventurous in bed — he's not content with vanilla missionary sex. Also, he will talk dirty, explore your body, and whispers dirty things in his woman's ear. And he also takes great pleasure in arousing his partner to wild heights.

What's higher than a beta male? ›

Introduction. The terms alpha, beta, and gamma male are typically used to describe an individual's position within a social hierarchy. In linear hierarchies, alpha males are the highest-ranking males within a group, followed by beta, and then gamma males.

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