# Using alpha to evaluate trading strategy

I have a trading strategy that generates returns $R_{t}$. I want to test the strategy by looking at the alpha:

$R_t - R_{f,t} = \alpha + \beta (R_{m,t} - R_{f,t}) + e_t$

I compare my alpha against the strategy of just doing an equally weighted portfolio over my assets universe. I also use an analogous method for factor models with more regressors.

Does it matter that my $\hat{\alpha}$ is always insignificant at the $10\%$ level? I've tested many strategies using this type of factor model and $\hat{\alpha}$ is never significant at $10\%$. However I usually find that my $\hat{\alpha}$ is much larger for the strategies than for an unweighted portfolio.

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Whether is matters or not depends on what question are you interested in answering using this model. –  Ryogi Oct 29 '12 at 18:58

$\alpha=R_t-\beta R_i$ where $R_i$ is the index return.