calculating alpha?

Does anyone have a formula for calculating alpha in p123?

Thanks, Z.

Haveyou looked at the excel spreadsheet in Help-> Glossary? At the bottom you’ll find a link to download an example of how P123 calculats the major stats.

The path given doesn’t seem to exist any more but I found the knowledge base article and spreadsheet here: https://www.portfolio123.com/doc/side_help_item.jsp?id=30

This is a custom formula I use for Alpha:
Ret1Y%Chg-(Close(0,##UST3MO)+ Beta1Y *($Bench52-Close(0,##UST3MO)))

$Bench52 used above is another custom formula:
(((Close(0,$RUA)-Close(251,$RUA))/Close(251,$RUA))*100)

I use the Russell 3000 as my benchmark in my work, but you could substitute whatever benchmark suits you.

The $Alpha formula is based on Jensen’s formula:
Jensen Alpha

IMO alpha is only useful if you divide by some measure of risk such as beta or standard deviation of close price.

P123 does not offer Alpha as a factor, though I think they should…

-Steve T

Using Ret1Y%Chg doesn’t really measure alpha. You should use a weekly or monthly measure.

Here’s my formula, which doesn’t take into account the risk-free rate:

100*((1+LoopAvg ("Close(Ctr)/Close(Ctr+5)-1",52,0,5) - Beta1Y * LoopAvg ("Close(Ctr,$SP500) / Close(Ctr+5,$SP500)-1", 52, 0, 5))^52 - 1)

I suppose using average returns could work, but that is not the true definition of an alpha calculation. it would seem to me that averaging returns would dilute the real story, as if you are trying to use your alpha calculation as a risk measure, rather than a performance measure. Nevertheless since alpha is a comparison factor its all relative.

As stated above I use my Alpha divided by the standard deviation of 52 weekly returns, so averaging the assets returns over the year won’t give me the detail I’m looking for.