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Alpha calculator
Alpha calculator
Enter your values below and press Calculate to see your result instantly.
1.0 is market risk | < 1.0 is defensive | > 1.0 is aggressive
The Alpha (Ξ±)
3.6%
EXPECTED RETURN (CAPM)
11.4%
OUTLOGIC SCORE
Elite
Your portfolio delivered 3.6% more than the market indicated for your level of risk.
About the Alpha calculator
Jensen's alpha measures how much a portfolio earned above (or below) what its risk would predict. Positive alpha means it beat the market on a risk-adjusted basis.
How to use the Alpha calculator
- Enter the Portfolio Return (%) and the Benchmark Return (%).
- Enter the Risk-Free Rate (%) and the Portfolio Beta (Ξ²).
- Press Calculate.
Formula and method
Alpha = Rp β [Rf + Ξ² Γ (Rm β Rf)], where Rp is the portfolio return, Rf the risk-free rate, Rm the market return and Ξ² the portfolio beta.
Worked example
A portfolio returning 12% with Ξ² = 1.2, when the market returned 10% and the risk-free rate was 2%: expected return = 2 + 1.2 Γ 8 = 11.6%, so alpha = 0.4%.
Tips
- Alpha is only meaningful over a reasonably long period.
- Use a benchmark that matches your portfolio, such as an appropriate index.
Frequently Asked Questions
The portfolio earned less than its level of risk would have suggested.