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1. Investment evaluation.

Alpha is the portion of an investment’s total return arising from specific (that is non-market) risk.

It is a measure of the difference between the actual return and the expected performance arising from exposure to market risk factors.

Also known as the 'error term'.

An investment producing 'positive alpha' is one performing better than a benchmark with the same market risk.

2. Bank supervision - capital adequacy - operational risk.

Under the Basic Indicator Approach (BIA) calculation for operational risk capital adequacy, alpha is the weighting applied to gross income, to calculate the measure of risk.

This weighting factor is also sometimes known as 'beta'.

See also