# Alpha

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Alpha is a measure of the active return on an investment, the performance of that investment compared to the S&P500 index, where 0. 01 = 1%

• alpha < 0: the investment has earned too little for its risk (or, was too risky for the return)
• alpha = 0: the investment has earned a return adequate for the risk taken
• alpha > 0: the investment has a return in excess of the reward for the assumed risk
Open-source script

In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart.

Want to use this script on a chart?
```study(title="Alpha", shorttitle="Alpha")

////SHOULD BE USED TOGETHER WITH "Beta" INDICATOR
//Alpha is a measure of the active return on an investment, the performance of that investment compared to a suitable market index, where 0.01 = 1%
//alpha < 0: the investment has earned too little for its risk (or, was too risky for the return)
//alpha = 0: the investment has earned a return adequate for the risk taken
//alpha > 0: the investment has a return in excess of the reward for the assumed risk

//Beta Calculation
sym = "SPX500", res=period, src = close, length = input(title="rolling beta window",defval=300, minval=1)
ovr = security(sym, res, src)
ret = ((close - close[1])/close)
retb = ((ovr - ovr[1])/ovr)
secd = stdev(ret, length), mktd = stdev(retb, length)
Beta = correlation(ret, retb, length) * secd / mktd

//Alpha Calculation
y = input(title="alpha period", type=integer, defval=90, minval=1, maxval=1000)
ret2 = ((close - close[y])/close)
retb2 = ((ovr - ovr[y])/ovr)
alpha = ret2 - retb2*Beta
plot(alpha, color=green, style=area, transp=40)
```