How this calculator works
Jensen's alpha subtracts a CAPM-implied return from the supplied portfolio return. Beta measures sensitivity to the selected market benchmark, and the risk-free rate, market return and portfolio return must cover a consistent period. Positive alpha is outperformance relative to this model, not proof of manager skill. Endpoint values assume no external flows.
Formula
Alpha = Rp - [Rf + beta(Rm - Rf)]. Rp is portfolio return, Rf risk-free return and Rm market return.
Worked example
With a 10% portfolio return, 3% risk-free rate, beta 1.2 and 8% market return, the model return is 9% and alpha is 1%. A 5% return with Rf = 2%, beta = 1 and Rm = 8% gives -3% alpha.
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Frequently asked questions
Can beta be negative?
Yes. A negative beta describes inverse sensitivity to the selected market benchmark.
Is alpha the same as return above a benchmark?
Jensen's alpha adjusts the benchmark relationship using beta and the risk-free rate. Simple active return does not.
Should I subtract fees first?
Use a consistent return basis. A net-of-fee portfolio return measures net model-relative performance.