Question 1

How is excess return calculated?

Accepted Answer

Excess return is simply the strategy's return minus the benchmark's return over the identical period. $$ \begin{aligned} {	ext{excess return}} &= {	ext{strategy return}} \ &\quad - {	ext{benchmark return}} \end{aligned} $$ where: the gap, in percentage points (pp) the strategy's return over the period the benchmark's return over the same dates

Question 2

How does Fincanva handle it?

Accepted Answer

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.

Question 3

What counts as a good value?

Accepted Answer

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.

Question 4

What does it look like in practice?

Accepted Answer

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.

Beating a benchmark once is not a reason to expect it again.