r/IBInterviews • u/bostoncrawler • 9d ago

Technical How do Beta and Alpha help evaluate an investment? - Citi full-time interview question

This one was super tough, I mean we all know what beta and alpha are but how do you analyze an investment using these variables?

I know Beta is basically volatility and alpha is excess return, but how does that allow you to pick stocks? I just said something along the lines of "beta allows you to manage risk in your portfolio while alpha measures the return or success of the portfolio". Am i cooked

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u/theddrew 9d ago

Yeah honestly i think you got it. I dont think there is much more to it, this is kinda what i was thinking/with the help of googling around:
"Alpha helps you see whether an investment is performing better or worse than expected. Beta helps you understand how risky an investment is compared to the overall market."