How to calculate alpha in Excel
By
SpreadCheaters
You can watch a video tutorial here.
To calculate the Alpha in Excel, you need to have the following information in place:
- Actual rate of return of the portfolio
- The Risk-free rate of return
- The Market return
- Beta of the portfolio
Alpha is an important metric used by portfolio managers to measure whether a portfolio has performed better or worse than the market. The formula for calculating the Alpha of a portfolio is:
Alpha = Actual Rate of Return – Expected Rate of Return
> The Actual Rate of Return can be computed based on the actual performance of the portfolio
> Expected Rate of Return = Risk-free rate of return + Beta * (Market return – Risk-free rate of return)
Step 1 – Compute the Expected Rate of Return
– Select the cell where the result is to appear
– Type the formula using cell references:
= Risk-free rate of return + Beta * (Market return – Risk-free rate of return)
– Press Enter
Step 2 – Convert to percentage
– Go to Home > Number
– Click on the percentage (%) button
Step 3 – Enter the formula for Alpha
– Select the cell where the result is to appear
– Type the formula using cell references:
= Actual rate of return – Expected rate of return
– Press Enter
– The Alpha is displayed
