Excess return

Also seen as: active return, outperformance

How is excess return calculated?

Excess return is simply the strategy's return minus the benchmark's return over the identical period.

where: both returns cover the same dates, and the result is stated in percentage points (pp) — the plain difference between two percentages.

What counts as a good value?

A positive excess return means the strategy earned more than its benchmark over the period, which is the usual goal of an active strategy. It does not, on its own, say whether that extra return was worth the risk taken — a strategy can beat its benchmark while swinging far more along the way, so read it alongside a risk measure such as max drawdown.

Defaults in Fincanva

• Excess return is a difference between two percentages, so it is reported in percentage points (pp), not as a relative percentage.
• Both sides use the same starting capital and date range, because the benchmark is run as its own full backtest over the strategy's period.
• It can be positive or negative, and it changes if you switch the benchmark the strategy is compared against.

Worked example

Over the same period a strategy returns +12% while its benchmark returns +9%. The excess return is 12% − 9% = +3pp. Note that this is 3 percentage points, not "3% more": the strategy's return was three points of return above the benchmark's, a gap you read directly off the two figures.

These figures describe what a strategy would have done on historical data, not what it will do, and beating a benchmark once is not a reason to expect it again. Fincanva provides no financial advice — see Is this financial advice?.