Jensen's Alpha Calculator
Excess return above CAPM expected return.
Calculate Jensen's alpha — return above what CAPM predicts for the portfolio beta. Enter portfolio return and market return for an instant result.
What this tool does
Enter portfolio return, market return, benchmark rate, and beta. The tool shows Jensen's alpha.
Enter Values
Formula Used
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Disclaimer
Results are estimates for educational purposes only. They do not constitute financial advice. Consult a qualified professional before making financial decisions.
Portfolio return 12%, market 10%, benchmark rate 3%, beta 1.1: CAPM predicts 3 + 1.1×(10-3) = 10.7%. Alpha = 12 - 10.7 = 1.3% outperformance. Positive alpha signals potential skill. Negative means underperforming for the risk taken. Active funds charging fees need persistent positive alpha to justify.
Quick example
With portfolio return of 12% and market return of 10% (plus benchmark rate of 3% and beta of 1.1), the result is 1.30%. Change any figure and watch the output shift — it's often more useful to see the pattern than to memorise the formula.
Which inputs matter most
You enter Portfolio Return, Market Return, Benchmark Rate, and Beta. Not every input has equal weight. Flip one at a time toward extreme values to feel which ones move the needle most for your situation.
What's happening under the hood
CAPM-based alpha formula. The formula is listed in full below. If the number looks off, you can retrace the calculation by hand — that's the point of showing the working.
Using this well
Treat the output as one point on a wider map. Run it three times — a pessimistic case, a central case, and a stretch case — and plan against the pessimistic one. That habit alone separates people who stick with an investment plan from those who bail at the first wobble.
What this doesn't capture
Steady-rate math ignores real-world volatility. Actual returns are lumpy; sequence-of-returns risk matters most in drawdown; fees and taxes drag on compound growth; and behaviour changes in drawdowns can reduce outcomes below the projection. Treat the number as one scenario, not a forecast.
Where to go next
This calculation rarely sits alone in a planning exercise. If you're running these numbers, you'll probably also want the sharpe ratio calculator, the treynor ratio calculator, and the equity risk premium calculator — each one answers a different question in the same territory. Treating them as a set rather than in isolation usually produces a more honest picture.
Jensen's alpha produces an excess figure based on the inputs provided.
Inputs
This example uses typical values for illustration. Adjust the inputs above to match a specific situation and see how the result changes.
Sources & Methodology
Methodology
CAPM-based alpha formula.
References
Frequently Asked Questions
Positive alpha meaning?
Fees affect?
Beta measurement?
Limitations?
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