Measure return earned above what the asset’s market risk alone would justify.
Alpha is what remains after stripping out the return that market exposure alone would have produced. A high absolute return with a high beta can still be negative alpha, because the benchmark for that risk was higher. Alpha separates skill from leverage: buying more of the market raises returns but never produces alpha.
Alpha
Alpha = portfolio return − (risk-free rate + beta × (market return − risk-free rate))
Alpha = portfolio return − (risk-free rate + beta × (market return − risk-free rate)) Alpha is what remains after stripping out the return that market exposure alone would have produced. A high absolute return with a high beta can still be negative alpha, because the benchmark for that risk was higher.
Alpha separates skill from leverage: buying more of the market raises returns but never produces alpha.
This calculator takes 4 inputs: Portfolio return, Risk-free rate, Market return, Portfolio beta. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.