Q: What do ‘ alpha,’ ‘ beta’ mean in market jargon?

Answer: “Alpha” refers to how well an investment performed relative to a certain benchmark index. Alpha tells you whether the investment outperformed ( positive alpha) or underperformed ( negative alpha).

For example, if you invest in a small- cap stock mutual fund that returns 15% in a given year, and the Russell 2000 index returns 10%, your fund would have achieved positive alpha for the year.

On the other hand, “beta” gives you information about an investment’s volatility relative to the overall stock market. A beta of exactly 1 means a stock, fund or investment portfolio historically moves with the market, generally defined as the S& P 500. In other words, if the S& P 500 falls by 5%, a stock with a beta of 1 can be expected to do the same, absent any stock- specific catalysts.

A beta of more or less than 1 indicates the stock should be more or less reactive than the overall market. For instance, if your portfolio’s beta is 1.5, you can expect a 1.5% move for every 1% move in the market. A negative beta means an investment moves in the opposite direction as the overall stock market.

For example, Johnson & Johnson has a beta of 0.7, meaning it is less volatile than the overall market, while Amazon. com has a beta of 1.6, indicating that investors should expect higher volatility.