A measure of the return on a share compared to the expected return on shares with a similar beta coefficient. It identifies the specific risk associated with a particular share as opposed to the systematic risk associated with securities of the same class. Sometimes referred to as Treynor's alpha, it is formally calculated as:
Ri – Rf – βi[E(Rm) – Rf],
where Ri = the returns on the asset under consideration, Rf is the risk free return, E(Rm) is the average or expected returns on a market portfolio, and βi is the beta of the asset or portfolio i.
Subjects: Financial Institutions and Services.