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Active Return Definition and Quiz

A term that is easy to calculate but often mistakenly called Alpha--its risk-adjusted counterpart.
  1. Define - Define the term active return.
  2. Context - Use active return in a sentence.
  3. Quiz - Test yourself.
face pic by Paul Alan Davis, CFA
Updated: February 16, 2021
To evaluate the performance of an active manager requires more than active returns. Learn why below.

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Active Return for Investment Portfolio Analysis


Active return is the positive or negative result of a portfolio return minus its benchmark return over a specified period of time. For example, if a fund's total return was 9% and the benchmark return was 8%, then the active return for that period was +1%. Unlike the term alpha, active return does not take risk into consideration.

Synonym: relative return

For context, obtaining active returns for an active portfolio manager or active product is often the first step in a comprehensive performance study to see if the manager benefited from luck or skill. Many novice investors get enamoured with a manager's active returns without going the next step to analyze risk.

In a Sentence

Kay:  Shoot me now. Ken says we need training on the difference between active return and alpha.
Ann:  Gladly. And, what's wrong with that?


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Video Script

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Active return is a risk-adjusted return measure. | True or False?

False, the calculation requires simple subtraction.

A portfolio with positive active return against its benchmark may have negative alpha if its risk is higher than that of the benchmark. | True or False?

True. Often novice investors miss difference between these terms.

Questions or Comments?

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active return
portfolio return
benchmark return
relative return of investment
portfolio alpha
active investment return
active management
investment comparison
investment modeling
active stock return
performance measurement

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