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Performance & Risk Metrics
The excess return of a security or portfolio after removing the contribution attributable to systematic market risk, expressed relative to the security's or portfolio's beta coefficient.
Beta-adjusted return separates the part of a return driven by the broad market from the part specific to the stock. Strip out the market component and what remains is closer to true alpha: the return you cannot explain by simply having been exposed to the index. It tells you whether a strong month came from skill or selection rather than from a rising tide lifting everything.
The standard version is Jensen's alpha: return in excess of what the Capital Asset Pricing Model (CAPM) would predict for the stock's beta. The estimate is only as stable as the beta behind it, so when beta drifts across regimes the adjusted return becomes noisier and should be read with that caveat.
Formula