On our site, every return comes with a companion figure. You'll see something like +1.8% · SPY +0.9% · α +0.9%. The first number is what a portfolio actually did. The second is what the market did. And that third one — the α — is the number we care about most. So what is it?
Alpha is the part of a return that the market doesn't explain. When stocks broadly rise, almost everyone's portfolio rises with them — that's not skill, that's the tide. Alpha asks a sharper question: once you subtract the tide, is anything left over? If the market is up 10% and a portfolio is up 12%, roughly ten of those points came from simply being invested, and the extra two points are where skill — or luck — might be hiding. That leftover is alpha.
It helps to name alpha's quieter twin: beta. Beta is the market-riding part — the return you get just for showing up and holding stocks. A rising tide lifts all boats, and beta is the tide. Alpha is how well you actually sailed. Most of any given year's return, for most investors, is beta. That's not an insult; it's just arithmetic. The whole game of active investing is trying to add a little alpha on top without taking wild risks to get it.
Same 500 stocks, different answer
Alpha can sound abstract, so here it is in the wild — in the cleanest natural experiment the market offers. Take two funds that hold exactly the same 500 stocks: SPY, which weights them by size (the biggest companies dominate), and RSP, which weights all 500 equally. No stock-picking difference whatsoever. The only decision that differs is how much of each stock to hold — and that decision alone has been worth about thirty points since 2021:
Every point of that gap is alpha — negative alpha for the equal-weight portfolio in this window, driven by the mega-cap rally of 2023–2024. The lesson cuts both ways: you don't need exotic stock picks to generate alpha. Weights alone do it. Which is exactly why our engine spends as much effort on position sizing as on picking — and why "how much" is a published number in every report, not a footnote.
The alpha line: strip out the market
How is alpha measured? The crude version is simple subtraction: your return minus the benchmark's return over the same window — that's the α we display next to SPY. A more formal version, called Jensen's alpha, first adjusts for how much market risk you took on (your beta) before deciding what's genuinely "excess." Either way, the spirit is identical: strip out the market, and see what remains. Here is that subtraction, drawn as a single line for the equal-weight experiment above:
When that line is flat, there is no alpha — the portfolio is just riding the tide. Every slope, up or down, is a return the market itself doesn't explain. Year by year, the same story looks like this:
| Year | SPY (cap-weight) | RSP (equal-weight) | Equal-weight alpha |
|---|---|---|---|
| 2021 | +28.7% | +29.4% | +0.7 pts |
| 2022 | −18.2% | −11.6% | +6.5 pts |
| 2023 | +26.2% | +13.7% | −12.5 pts |
| 2024 | +24.9% | +12.8% | −12.1 pts |
| 2025 | +17.7% | +11.2% | −6.5 pts |
| 2026 YTD | +10.1% | +13.2% | +3.0 pts |
And here is the catch to watch for. Look at how the sign flips: equal weight beat SPY by six and a half points in 2022, then lost by twelve in each of the next two years, and is winning again in 2026. Same 500 stocks, same rule, wildly different verdicts window by window. Over a few days or weeks, alpha is mostly noise — a lucky pick or a single good session can produce a big number that means nothing. Real alpha only shows up over enough time for luck to average out. A short streak of beating the market is not proof of skill; it's a hypothesis waiting for more data.
Where the word comes from
The term comes from economist Michael Jensen, who in a 1968 study of mutual funds ("The Performance of Mutual Funds in the Period 1945–1964") built the first rigorous measure of manager skill above the market. His conclusion was famously humbling: on average, the funds he studied could not pick well enough to beat a simple buy-and-hold of the market after costs. That result helped launch the index-fund era — and it's exactly why alpha deserves respect. Positive, durable alpha is genuinely hard. Anyone who treats it as easy is usually measuring luck.
Why we lead with alpha
An absolute return, on its own, is easy to misread. "Up 8% this month" sounds great — until you learn the market was up 9%, which means the portfolio quietly lost ground versus just buying the index. Alpha is the number that keeps everyone honest: it asks not "did you make money?" but "did you actually add anything the market wasn't already handing out?" That's the harder question, so it's the one we put front and center. Every morning before the open, our four strategies seal their picks and weights, publish the reasoning, and let the α column be computed against SPY — wins and misses alike, day after day, so the answer accumulates in public rather than being taken on faith. Not a promise of alpha; a promise to measure it honestly.
1. Alpha = your return minus the market's. It's the leftover after subtracting the tide — the only part of a return that says anything about skill.
2. Weights alone create alpha. The same 500 stocks, cap-weighted vs equal-weighted, diverged by roughly 30 points in five years — sizing is a real decision, not a detail.
3. Alpha flips sign over short windows (+6.5 pts in 2022, −12.5 in 2023, positive again in 2026). Judge it over time, not over a hot week — a pattern to understand, not a prediction.
This is informational and entertainment content — not investment advice. Charts and tables are built from Tiingo adjusted-close data (dividends included); SPY and RSP are referenced as public market data, not as recommendations. Past results do not guarantee future outcomes.