Alpha (α) in Stock Market

1. Alpha measures the return on an investment above a given benchmark or index like SENSEX. Simply put, a stock’s alpha is a measurement of the amount of profit on an investment in comparison to a benchmark like like Nifty 50, S&P 500 which was already set for it.
2. It effectively represents the active return realised from the stock’s performance after taking volatility and market turbulence into account. After considering erratic variations and market-related volatility, alpha shows the excess return on an investment. 
3. The alpha measure is a single number that can be either positive or negative. If a stock outperforms its benchmark value, its alpha is shown in positive as a figure that represents the amount by which it beat the market. A negative alpha, on the other hand, shows how much the stock underperformed.

• Positive Alpha (>0) → The stock/fund outperformed the benchmark.
• Negative Alpha (<0) → The stock/fund underperformed the benchmark.
• Example: If the benchmark gives 10% and your stock gives 12%, then Alpha = +2% (good performance).

Beta (β) in Stock Market

1. Beta coefficient, or simply beta, is a measure of a stock’s volatility or relative risk in relation to the performance of the overall market. It is a fund’s response to market volatility. Beta measures the volatility (risk) of a stock relative to the overall market. 
2. It basically measures how volatile an asset is, compared to the overall market. Essentially, it calculates the risk level of an investment.
3. The market index, wholly, has a beta of 1. So, an asset with a beta of more than 1 is more volatile than that index. While an asset with a beta of less than 1 is less volatile. And an asset with a beta of 1 would be expected to move in sync with the index.

• Beta = 1 → Moves exactly with the market.
• Beta > 1 → More volatile than market (higher risk, higher return potential).
• Beta < 1 → Less volatile than market (safer, defensive stock).
• Negative Beta → Moves opposite to market (very rare, e.g. gold-related stocks sometimes show this).

Comparison between alpha and Beta

1. Although they are both technical analysis indicators, each one serves differently. Alpha focuses more on the immediate benefits of investing, because it shows the degree of stock’s return relative to a particular benchmark. Beta, on the other hand, reveals the systematic risk of volatility connected to a stock.
2. Alpha indicates excess return, whereas beta measures the risk for volatility of an asset.
3. While evaluating potential investments, it’s best to consider both the alpha and beta, along with a host of other factors, and not just either/or.
4. Alpha and beta are both backward looking data points which are likely to measure past performances and cannot be used as evidence of future performance. So other factors should also be considered while making an investment.