Alpha (α) Calculator: Measure Portfolio Outperformance

Alpha (α) is a key metric for investors seeking to understand how well a portfolio performs relative to market risk. Unlike Beta, which measures volatility, Alpha measures value added by the portfolio manager.

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Our Alpha Calculator helps you determine if your portfolio outperformed or underperformed the market after adjusting for risk.

What is Alpha (α)?

Alpha is the excess return of a portfolio relative to the expected return given its beta.

Alpha Formula: α=Portfolio Return−(Risk-Free Rate+β×(Market Return−Risk-Free Rate))\alpha = \text{Portfolio Return} – \big(\text{Risk-Free Rate} + \beta \times (\text{Market Return} – \text{Risk-Free Rate})\big)α=Portfolio Return−(Risk-Free Rate+β×(Market Return−Risk-Free Rate))

Portfolio Return: Actual return of the portfolio.
Risk-Free Rate: Return of a risk-free investment.
Beta: Market sensitivity of the portfolio.
Market Return: Return of the benchmark market index.

A positive alpha indicates a portfolio is generating returns above what is expected based on its risk, while a negative alpha shows underperformance.

How to Use the Alpha Calculator

Enter Portfolio Return (%).
Enter Risk-Free Rate (%).
Enter Portfolio Beta.
Enter Market Return (%).
Click Calculate.

The calculator shows Alpha (α) and a color-coded indicator:

Alpha (α)	Interpretation	Indicator
> 0	Positive Alpha: Outperformed market	✅ Green
= 0	Neutral Alpha: Matched market	⚠️ Orange
< 0	Negative Alpha: Underperformed market	❌ Red

Example:

Portfolio Return = 12%
Risk-Free Rate = 6%
Beta = 1.2
Market Return = 10%

α=12−(6+1.2×(10−6))=12−(6+4.8)=1.2%\alpha = 12 – \left(6 + 1.2 \times (10 – 6)\right) = 12 – (6 + 4.8) = 1.2\%α=12−(6+1.2×(10−6))=12−(6+4.8)=1.2%

✅ Positive Alpha: The portfolio outperformed the market after adjusting for risk.

Why Alpha Matters

For Investors: Understand if a portfolio manager is adding value.
For Portfolio Managers: Gauge performance against risk-adjusted benchmarks.
For Analysts: Useful when comparing funds and strategies.

A positive alpha signals skillful management, while a negative alpha indicates underperformance relative to market risk.

Key Takeaways

Alpha measures risk-adjusted outperformance.
α > 0: Portfolio added value.
α = 0: Performance in line with market.
α < 0: Portfolio underperformed.
Combine Alpha with Beta, Sharpe, Treynor, and Sortino Ratios for a complete risk-return evaluation.

Try the Alpha Calculator Now

Use our Alpha (α) Calculator to quickly evaluate whether your portfolio is outperforming or underperforming after adjusting for market risk.