Alpha of the stock
After correcting for market-related volatility and random variations, alpha is the excess return on an investment. For mutual funds, stocks, and bonds, alpha is one of the five key risk management indicators. In a way, it informs investors whether an asset has regularly outperformed or underperformed its beta.
The beta of a stock
In comparison to the market as a whole, beta is a measure of a security’s or portfolio’s volatility or market risk.
Beta data on a single stock can only provide an investor a rough idea of how much risk the stock might add to a well-diversified portfolio.
In layman’s terms, beta indicates how much a stock’s price may fluctuate in comparison to the overall market or index.
If a stock’s beta is 1, it suggests that it should move in sync with the index.
For example, if a stock’s beta is 2, a 10% increase in the index should result in a 20% increase in the stock’s price.
When the beta is negative, the stock price moves in the opposite direction as the index price.