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When assesssing the risk of a mutual fund, what does Alpha mean?

When assesssing the risk of a mutual fund, what does Alpha mean?

I get all my definitions on financial stuff from InvestorWords.com. I'm sure it has a good explanation of the term. They usually have at least a few definitions as well as links to related words. In my experience they are pretty good at breaking it down in layman terms as well.

The mathematical estimate of the return on a security when the return on the market as a whole is zero. Alpha is derived from a in the formula Ri = a + bRm, which measures the return on a security (Ri ) for a given return on the market (Rm ) where b is beta.

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