# How to calculate alpha in Excel

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