Alpha vs benchmark
Alpha
What it is
Outperformance (or underperformance) of the stock relative to its benchmark over the same horizon, in percentage points. An alpha of +5 pp over 1 year means the stock beat the index by 5% over the period.
How to read it
Persistent positive alpha across multiple horizons (1mo, 3mo, 6mo, 1y) signals a stock that structurally beats its index — often due to superior fundamental quality or a tailwind theme. Persistent negative alpha inverts the message.
Common reference points
- Strong outperformance> +10 pp
- Moderate outperformance+2 to +10 pp
- Index-aligned−2 to +2 pp
- Underperformance< −2 pp
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
Short-term alpha is dominated by noise. Persistent alpha over 1y+ is more meaningful. But even persistent alpha can reverse abruptly — the factor driving the stock can deplete.
Other measures — Performance
Educational content. Polaris is not a registered investment adviser and makes no recommendation.