What 'beating the market' actually means
Most investors measure themselves on absolute return: was the year up or down? That misses the question that actually matters — did you do better than the cheapest possible alternative? For an equity investor, the cheapest alternative is a broad index ETF, so the right comparison is your portfolio against an index you'd otherwise have owned.
Three numbers carry that comparison: alpha (how much extra return you got after accounting for market risk), beta (how much your portfolio moves when the market moves) and correlation (how tightly they move together).
Alpha — the part you can't explain by the market
Imagine your portfolio returned 12% and the market returned 10%. The naive read is 'I beat the market by 2%'. But what if your portfolio is twice as volatile as the market? Then on a risk-adjusted basis, taking that much risk should have produced ~20%, and 12% is actually underperformance.
Alpha is the extra return above what your market exposure (beta) was expected to produce. The strict CAPM definition also uses the risk-free rate: α ≈ R_portfolio − (R_f + β × (R_market − R_f)). Positive alpha means real outperformance; negative alpha means you took risk that wasn't rewarded. Over long periods, a majority of active funds fail to produce positive alpha after costs — which is why index investing wins by default.
Beta — how much you move when the market moves
Beta is a number around 1, estimated by regression on historical returns — so treat it as an average tendency, not a fixed multiplier. β = 1 means your portfolio has historically moved with the market. β = 1.5 means it has on average moved about 1.5× the benchmark — concentrated in growth, tech or small-cap typically pushes here. β = 0.7 means it has moved less than the market — defensive sectors, utilities and dividend-heavy portfolios usually sit here.
Beta isn't 'good' or 'bad'; it's a statement about how your portfolio is going to feel when the market is on fire or on the floor. A high-β portfolio with positive alpha can be exactly right for a long-horizon investor; the same portfolio is exactly wrong for someone needing the money in two years.
Why time-weighted return is the only honest input
A naive monthly return uses end-of-month portfolio value divided by start-of-month value. For any portfolio you're adding to via DCA, this is wildly broken: the month you put €5,000 in, your 'return' looks enormous even if no stock moved. Comparing that against a benchmark gives nonsense alpha.
Time-weighted return (TWR) neutralises external cashflows — deposits into your broker account and withdrawals out of it — so what's left is the return of the investments themselves. Buying and selling securities within the account is part of the portfolio's return, not an external flow. FolioInsights uses TWR everywhere in the benchmark comparison, which is why your headline alpha is comparable to a fund's published number even if you've been adding €500 a month for five years.
Picking the right benchmark
FolioInsights offers four: MSCI World (developed-market equities, the default for most diversified portfolios), S&P 500 (US large-cap, the right comparison if you're mostly in US single stocks), STOXX 600 (European large-cap, the right comparison for European single-stock portfolios) and NASDAQ 100 (US tech-heavy, useful if your concentration is in mega-cap tech).
Pick the one that most closely matches the universe you actually invest in. Comparing a US-tech portfolio against MSCI World will produce flattering alpha in tech bull years and brutal alpha when tech sells off — neither tells you whether your picks within tech are working.
How it looks in FolioInsights
Benchmark · hero
Portfolio vs market
Cumulative return compared with MSCI World, in EUR — your line is solid, the benchmark is dashed.
α (annualised)
+1.8%
Excess vs benchmark
β
1.12
Co-move with benchmark
Sharpe
0.74
Return per unit risk
Sortino
1.05
Return per downside risk
Volatility
15.8%
Annualised stdev
Correlation
0.91
Paired-month r
Rendered from a synthetic demo portfolio — your own dashboard uses your DeGiro CSV.
What's a good alpha figure?
Positive at all is good. Persistently positive over 3–5 years is rare. Persistently positive after costs and taxes is what most active fund managers don't deliver. If your alpha is consistently negative, the cheapest fix is to swap individual positions for a broad-index ETF.
My beta is over 1 — is that bad?
Not by itself. β > 1 means you'll outperform in up markets and underperform in down markets — a long-horizon investor with stable income can absolutely run β = 1.3 by design. The risk is mismatch: if your time horizon or your stomach can't handle the drawdowns that come with high beta, you'll sell at exactly the wrong time.
Why does FolioInsights use time-weighted return instead of simple return?
A DCA investor's 'simple' monthly return is dominated by deposits, not market moves. Time-weighted return strips out deposits and withdrawals so the number reflects market performance only — making it comparable to a benchmark and to published fund returns. Without TWR, a €5,000 deposit looks like a +160% best month, which is meaningless.
Should I switch to an index fund if alpha is negative?
If alpha is negative over 3+ years across multiple benchmarks, almost certainly yes — for the equity portion you'd otherwise hold passively. That doesn't mean abandoning every conviction; it means recognising that 'random stocks I like' tends to lose to MSCI World over time, and the cheapest fix is the simplest one.
Why is alpha sometimes blank?
Two reasons. (1) Fewer than two months of overlapping returns between your portfolio and the benchmark. (2) FX translation failed: a non-EUR display currency without enough historical FX cache means the benchmark series can't be converted to your currency, and pairing an EUR benchmark with a non-EUR portfolio would give a nonsense alpha. FolioInsights blanks it rather than show a misleading number.