CAPM alpha: Measuring Return Above a CAPM Benchmark
CAPM alpha compares an asset's return with the model return implied by beta and the market premium. Positive alpha means outperformance relative to those inputs.
Use the CAPM alpha Calculator to enter your own figures and compare the result with the worked example below.
CAPM alpha formula
Alpha = Asset return − [Risk-free rate + β×(Market return − Risk-free rate)]
Worked example
| Item | Example value |
|---|---|
| Asset return | 12 % |
| Risk-free rate | 3 % |
| Beta | 1.2 beta |
| Market return | 8 % |
| CAPM alpha | 3% |
These are illustrative inputs, not current prices, rates or recommended targets. Where a currency is shown, keep all comparable money amounts in the same currency; conversion examples identify the two sides separately.
How to interpret the result
Benchmark choice, fees and measurement period matter. A single positive observation does not establish investment skill.
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Method and further reading
The example follows the FinMathly calculator method. For broader background, see Investor.gov: Introduction to investing. The background resource may use jurisdiction-specific terms; it does not replace the assumptions of this calculator.
Featured photograph: Pexels.