- Excess return is the return that exceeds the income of the proxy.
- Excess returns will depend on the designated investment return comparison for analysis.
- The risk-free rate and benchmarks with similar levels of risk for the analyzed investment are usually used in calculating excess returns.
- Alpha is a type of excess returns metric that focuses on the return on performance in excess of a closely comparable benchmark.
- Excess returns are an important factor when using modern portfolio theory, which aims to invest with an optimized portfolio.