The alpha coefficient (α_i) is a parameter in the Capital Asset Pricing Model. In fact it is the intercept of the Security Charesteristic Line (SCL). One can proof that the expected value of the alpha coefficient equals the return of the riskfree asset: E(α_i) = r_f. The capital asset pricing model (CAPM) is used in finance to determine a theoretically appropriate required rate of return (and thus the price if expected cash flows can be estimated) of an asset, if that asset is to be added to an already well-diversified portfolio, given that assets... In telecommunication, the term intercept has the following meanings: 1. ... Capital Market Line Modern portfolio theory (MPT) proposes how rational investors will use diversification to optimize their portfolios, and how an asset should be priced given its risk relative to the market as a whole. ...

Therefore the alpha coefficient can be used to determine whether a stock be overvalued or undervalued:

• α_i < r_f: the stock is undervalued
• α_i = r_f: the stock is valued correctrly
• α_i > r_f: the stock is overvalued

The difference α_i − r_f is called Jensen's alpha.