Strategy outperformance

The measurement of "Alpha"—the value added (or lost) by the trading strategy relative to a passive buy-and-hold approach. This metric identifies whether the active decisions of the strategy resulted in a better outcome than simply holding the asset for the same duration.

Exclusions: This metric measures the strategy's absolute excess return over the passive benchmark. It does not account for the different levels of risk or volatility taken to achieve those results.

Positive value: The strategy successfully outperformed the market, justifying the complexity and costs of active trading.

Negative value: The strategy underperformed the market. In this case, the user would have been financially better off with a passive investment, as the active trading "destroyed" potential value.

Calculation Formulas

This is the simple difference between what the strategy’s Net PnL and what the asset itself returned.

Where:

• Net Profit: The strategy's net profit in dollars for the period. 
• Buy & Hold Return ($): The return in dollars from simply buying and holding the asset for the period.

Where both Net Profit and Buy & Hold Return must be calculated for the exact same period.