Alpha & Beta Calculator
12.5%
+2.5%
Moderate (Market Matching)
Jensen's Alpha Interpretation
✅ Positive Alpha (+2.5%): The fund manager outperformed the benchmark index after adjusting for risk. This shows active management added genuine value!
💡 Beta (Risk): A beta of 1.0 means the fund moves in tandem with the index. A beta of 1.2 means when the index rises 10%, the fund typically rises 12% (and falls 12% in down-markets).
What to do next
Based on your Alpha & Beta Calculator, here are the tools you should try next:
Advertisement
Jensen's Alpha Formula (CAPM)
Measures excess risk-adjusted return (Alpha) and volatility ratio (Beta) relative to a benchmark index.
Worked Example: Fund return 15%, Benchmark 12%, Risk-Free 7%, Beta 1.1
Alpha & Beta: Deciphering the Efficiency of Your Fund Manager
Varun was comparing two mid-cap funds. Fund A had returned 18% last year, and Fund B returned 16%. Varun was ready to buy Fund A, assuming it was superior. However, his advisor suggested checking the Alpha and Beta coefficients.
He discovered that Fund A had a high Beta of 1.3, meaning it took 30% more risk than the market. Its expected risk-adjusted return (CAPM) was 18.5%, yielding a negative Alpha of -0.5%. Fund B had a Beta of 0.9 (lower risk than the market), and its expected return was 13.5%, yielding a positive Alpha of +2.5%.
Fund B's manager generated genuine outperformance (Alpha) through smart stock selection, whereas Fund A's manager simply took on excess market leverage (Beta) to inflate returns in a bull run.
Always evaluate active mutual funds using Alpha and Beta. A fund manager who generates positive Alpha with a low Beta is highly efficient, protecting your downside during market corrections while beating the index in the long run.
Frequently Asked Questions
What is Alpha in mutual funds?
Alpha measures a fund's risk-adjusted outperformance relative to its benchmark index. A positive alpha (e.g. +2%) means the fund manager outperformed the index after accounting for risk.
What is Beta in mutual funds?
Beta measures a fund's volatility relative to the market index. A Beta of 1.0 matches market volatility. Beta > 1.0 is more volatile (riskier); Beta < 1.0 is less volatile (defensive).
Why should I check Alpha and Beta before investing?
To ensure your returns are coming from smart stock selection (positive Alpha) rather than the manager taking on high market risk (high Beta) which can lead to large losses in market downturns.
Get Smarter With Money Every Week
Join 10,000+ readers. One actionable money tip delivered free every Sunday.
Was this calculator helpful?
Advertisement