Alpha Calculator
Enter actual return, risk-free rate, Beta and market return to compute the excess return Alpha.
Input Data
Results
At a glance:Expected return E[R] = Rf + β(Rm − Rf). Alpha = actual return − E[R]. Alpha>0 means outperformance versus the market for the risk taken (selection/timing skill); Alpha<0 means underperformance.
Formula
E[R] = Rf + β(Rm − Rf).
Alpha = R_actual − E[R].
α>0 outperforms; α<0 underperforms.
How to Use
- Enter actual return, risk-free rate, Beta and market return.
- The tool computes the CAPM expected return and Alpha.
Case Studies
Actual 12%, Rf 4%, β 1.1, Rm 9%
E[R] = 4 + 1.1×(9−4) = 9.5%.
Alpha = 12 − 9.5 = 2.5% (outperformance).
FAQ
Does a positive Alpha mean a great fund?
In theory it means risk-adjusted excess return, but you need a long enough sample and a proper benchmark (correct Beta market). A brief positive Alpha may just be luck or style exposure.
How is it related to Beta?
Beta sets the 'deserved return' (compensation for systematic risk); Alpha is the residual of 'actual minus deserved'. Both come from the CAPM framework.
Can fees eat Alpha?
Yes. A fund's gross Alpha may be positive, but after management/subscription fees the net Alpha is often negative. Compare net asset-value performance after fees.
Is negative Alpha always bad?
It underperforms versus the risk its Beta takes. But if you want low volatility, a negative-Alpha asset may still fit your allocation — judge the whole portfolio.
Difference from Sharpe ratio?
Sharpe adjusts return by total risk (incl. unsystematic); Alpha adjusts excess return by systematic risk. Alpha better isolates 'stock-picking skill'.
With zero Beta, is Alpha actual minus risk-free?
Yes. At β=0, E[R]=Rf, so Alpha = actual return − Rf, i.e. excess absolute return (e.g. market-neutral strategy).
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References
Content review: Calculatorism Science Team. Results are for reference only; please refer to the relevant authorities for the official figures.