About the Alpha Beta Calculator
What is the Alpha Beta Calculator?
Beta measures how sensitive a fund or stock is to market movements: a beta of 1.1 means it tends to move 10% more than the market. Alpha measures the return earned above what that level of market risk should have produced — a manager's value added.
Enter the portfolio return, the benchmark (index) return, the risk-free rate and the portfolio's beta. The calculator uses the Capital Asset Pricing Model (CAPM) to find the expected return for that beta and reports Jensen's alpha.
How to use the Alpha Beta Calculator
- Portfolio Return (%) (sample: 16)
- Benchmark Return (%) (sample: 12)
- Risk-Free Rate (%) (sample: 6)
- Beta (sample: 1.1)
- Press Calculate Alpha / Beta (results also refresh as you type). The result card shows the Alpha, along with Beta, CAPM Return and Portfolio Return.
Formula used
Alpha = Rₚ − [R_f + β × (R_m − R_f)]
- Rₚ = the portfolio return
- R_m = the benchmark return
- R_f = the risk-free rate
- β = the portfolio beta
The part in square brackets is the CAPM required return. Positive alpha means the portfolio beat the return justified by its risk.
Worked example
These are the sample values already filled in the calculator above, and the result it returns for them:
| Input | Sample value |
|---|---|
| Portfolio Return (%) | 16 |
| Benchmark Return (%) | 12 |
| Risk-Free Rate (%) | 6 |
| Beta | 1.1 |
| Result | Value |
|---|---|
| Alpha | 3.4% |
| Beta | 1.1 |
| CAPM Return | 12.6% |
| Portfolio Return | 16% |
Tips for using the Alpha Beta Calculator
- Mutual fund factsheets list beta and alpha, usually over 3 years.
- A high positive alpha over many years is rare; check whether it persists.
- Low-beta funds fall less in crashes but usually rise less in rallies too.