What does your portfolio look like against the market?
Markowitz asks whether the stocks you picked could be weighted more efficiently. CAPM looks at your portfolio’s risk and return with the market as the yardstick: how much it swung when the market moved, and whether any return was left after accounting for that movement.
Why compare with the market
A high return can simply come from holding many stocks that move more than the market when it rises. To judge performance, look at what risk you took as well as how much you earned.
The capital market line in the Efficient frontier tab is a benchmark built by combining the market portfolio with a risk-free asset. The horizontal axis is volatility and the vertical axis is return. Compare your portfolio with the line at the same horizontal position to see where your return stands relative to your total volatility.
| Your portfolio’s position | How to read it |
|---|---|
| Above the line | Return for the risk is higher than the benchmark line shown. |
| Near the line | Return for the risk is similar to the benchmark line shown. |
| Below the line | Return for the risk is lower than the benchmark line shown. |
Treat this position as a starting point for the checks that follow. It is a comparison drawn from past returns and the model’s assumptions, so it does not guarantee future performance or the return you could actually have earned at the time. The part of the line beyond the market portfolio point also assumes you borrow to invest.
Read in order: beta, risk split, alpha
Market beta — how sensitive were you to the market?
Market beta shows how much your portfolio’s excess return changed, on average, when the market’s excess return changed. Excess return is return minus the risk-free rate.
A beta of 1 means sensitivity similar to the market; above 1, more sensitive. Between 0 and 1, the portfolio moved in the same direction as the market but less strongly; a negative beta means it tended to move the opposite way.
The Market shock scenarios tab turns this into the size of a gain or loss. For illustration, with a beta of 1.2 and a 20% market fall, the bar shows 1.2 × −20% = −24%. It is a simple calculation that leaves out alpha and the risk-free return, and the pale band shows how large the swings not explained by the market are. Don’t read it as a ceiling or floor on actual losses.
Risk split — what made it swing?
The Risk split tab divides variance, the size of return fluctuations, into two shares.
Market share: the part explained by movements in the benchmark market.
Stock-specific share: the part a single market factor does not explain.
If the specific share is large, check whether you lean toward particular stocks or industries. Keep in mind that it can also include the effect of other common factors CAPM does not cover. Don’t read it as risk that disappears entirely once you add more stocks.
Even with a low beta, total volatility can be high when the specific share is large. That is why market beta and the risk split should be read together.
Alpha — was any return left after market risk?
Alpha is the average excess return left after removing the part explained by market beta. The screen shows it annualized. Positive means the portfolio did better than the model explains; negative means it did worse.
The ‘Sig.’ mark (p < 0.05) means there is statistical evidence, under the model’s assumptions, that alpha differs from zero. Without the mark, read it as not enough evidence to judge rather than proof that there is no difference. Even a significant positive alpha does not prove skill or future returns.
Check your position against the capital market line and alpha separately. The first looks at return for total volatility; the second at return after accounting for market beta.
Three changes to try after reading the result
If losses in a market fall feel too heavy
If a few holdings drive the result
If you want to check what your picks added
What to check when comparing
Analysis period
Volatility, expected return and Sharpe are the same figures as Markowitz. Market beta and alpha are calculated over the period that overlaps with market data, which can be shorter. Check the period shown on screen first.
Benchmark market
Calculated against the stock market. Mixed Korea–US portfolios use a market blended by country investment weight, and currency moves are not reflected. Changing the country weights changes the benchmark as well.
Limits of the estimate
Beta and alpha are estimated from past data and change with the period and market conditions. Better past metrics after reweighting do not mean better performance ahead.
This article was written with the help of AI.