Alpha in focus — but not alone

In private equity and portfolio management, “alpha” is considered the key performance indicator: it represents the value added that a fund or company generates beyond the market. Yet in the classic single-index model (CAPM), this alpha does not appear explicitly at all. This raises the question: how exactly are alpha, beta, and residual variance related—and why is it not enough to look only at alpha?

In the accompanying article, we have given some thought to this topic.