Alpha -- Coefficient derived mathematically to represent that part of the Return of an investment which is due to risk outside the market. Alpha is the portion of expected gain attributable to intrinsic factors in an investment, such as the more or less stable rate of growth in earnings per share. In contradistinction, Beta is the coefficient showing the proportion of return that is due to Volatility. If a stock is marked with an alpha of 1.30, it means that the share price will rise 30% annually when both the market return and the beta on the stock are zero. An investment that has a high alpha relative to its price is underrated and seen as a good bet. When applied to a Mutual Fund, alpha is a measure of the correlation between the findfs showing and its beta over a period of 3 years.
The expression "alpha stocks" is used in the International Stock Exchange of the United Kingdom and Republic of Ireland (ISE) to designate the stocks of the biggest and most vibrant companies. The relevant method of classification was first implemented after the Big Bang of October 1986 and was then substituted with the Normal Market Size (NMS) system in January 1991.
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