What It Means
Beta measures how much a fund's returns move relative to its benchmark index. A Beta of 1 means the fund tends to move in step with the benchmark; a Beta above 1 means it swings harder in both directions, and below 1 means it moves more mildly. Alpha measures the extra return, positive or negative, that a fund actually delivered beyond what its Beta and the benchmark's own return would predict.
How It Works
If a fund has a Beta of 1.2 and its benchmark returned 10% for the year, Beta alone would predict roughly a 12% return from the fund. If the fund actually returned 14%, its Alpha is roughly +2%, the part of the return that came from the fund manager's stock selection rather than just riding a higher-beta version of the benchmark. A negative Alpha means the fund underperformed what its risk level should have delivered, even if its absolute return looks fine on its own.