{"url":"https://etfiq.com/academy/advanced-portfolio-design/alpha-beta-r-squared/","section":"academy","title":"Alpha, beta and R\u00b2: is the edge real? | ETFIQ","description":"Learn how alpha, beta, R\u00b2 and the alpha t-stat tell skill from luck, worked step by step on real AVUV and IWN scorecard data. Free, on real ETF data.","as_of":"Nov 6, 2026","structured_data":[{"@type":"LearningResource","@id":"https://etfiq.com/academy/advanced-portfolio-design/alpha-beta-r-squared/#lesson","name":"Alpha, beta and R\u00b2: is the edge real?","description":"From Oct 4, 2019 to Nov 6, 2026, AVUV's alpha was 4.2% a year, but its t-stat of 1.85 fell short of the 2.","url":"https://etfiq.com/academy/advanced-portfolio-design/alpha-beta-r-squared/","learningResourceType":"Lesson","teaches":"Beta, alpha, R-squared and the t-stat: what a fund earned beyond its risk, and whether chance could explain it","educationalLevel":"Advanced","timeRequired":"PT7M","inLanguage":"en","isAccessibleForFree":true,"isPartOf":{"@type":"Course","@id":"https://etfiq.com/academy/advanced-portfolio-design/#course","name":"Advanced Portfolio Design","url":"https://etfiq.com/academy/advanced-portfolio-design/"},"position":1,"dateModified":"2026-11-06","author":{"@type":"Organization","name":"ETFIQ Research","url":"https://etfiq.com"},"publisher":{"@type":"Organization","name":"ETFIQ Research","url":"https://etfiq.com"}},{"@type":"FAQPage","@id":"https://etfiq.com/academy/advanced-portfolio-design/alpha-beta-r-squared/#check","mainEntity":[{"@type":"Question","name":"A fund's beta to its benchmark is 1.2. The benchmark earned 8 points above bills; the fund earned 11. Roughly what is its alpha?","acceptedAnswer":{"@type":"Answer","text":"1.4 points. beta predicts 1.2 \u00d7 8 = 9.6; 11 \u2212 9.6 = 1.4."}},{"@type":"Question","name":"A fund shows alpha of +3% a year with a t-stat of 2.4, but R\u00b2 against its benchmark is 0.40. What is the fair reading?","acceptedAnswer":{"@type":"Answer","text":"The alpha passes the chance test, but the benchmark may be the wrong yardstick. 2.4 passes the test, but R\u00b2 of 0.40 means the benchmark explains little."}},{"@type":"Question","name":"An alpha's 95% range is \u22121% to +5%. What can you say?","acceptedAnswer":{"@type":"Answer","text":"An alpha of zero cannot be ruled out. the range crosses zero."}}]},{"@type":"BreadcrumbList","itemListElement":[{"@type":"ListItem","position":1,"name":"ETFIQ","item":"https://etfiq.com/"},{"@type":"ListItem","position":2,"name":"Academy","item":"https://etfiq.com/academy/"},{"@type":"ListItem","position":3,"name":"Advanced Portfolio Design","item":"https://etfiq.com/academy/advanced-portfolio-design/"},{"@type":"ListItem","position":4,"name":"Alpha, beta and R\u00b2: is the edge real?","item":"https://etfiq.com/academy/advanced-portfolio-design/alpha-beta-r-squared/"}]},{"@type":"WebPage","name":"Alpha, beta and R\u00b2: is the edge real?","description":"Learn how alpha, beta, R\u00b2 and the alpha t-stat tell skill from luck, worked step by step on real AVUV and IWN scorecard data. Free, on real ETF data.","url":"https://etfiq.com/academy/advanced-portfolio-design/alpha-beta-r-squared/","dateModified":"2026-11-06","isPartOf":{"@type":"WebSite","name":"ETFIQ","url":"https://etfiq.com"},"speakable":{"@type":"SpeakableSpecification","cssSelector":[".lede"]},"publisher":{"@id":"https://etfiq.com/#org"}}],"characters":5939,"truncated":false,"content":"ETFIQ / Academy / Advanced Portfolio Design / Alpha, beta and R\u00b2: is the edge real? \n \n Alpha, beta and R\u00b2: is the edge real?\n Data as of Nov 6, 2026. Rebuilt every trading night.\n From Oct 4, 2019 to Nov 6, 2026 , AVUV's alpha was 4.2% a year, but its t-stat of 1.85 fell short of the 2.\n Advanced Portfolio Design \u00b7 Lesson 1 of 5 1 2 3 4 5 \n Set an amount. See the one-year pay AVUV earned above bills: what beta predicts, alpha, and the total. Amount (hypothetical) $10,000 On $10,000: What beta alone predicts $1,095, Alpha: beyond beta (4.2% a year, t-stat 1.85) $415, AVUV above bills $1,511. Hypothetical amount. Beta, alpha and returns are real marks against IWN, Oct 4, 2019 to Nov 6, 2026, 370 weekly returns. Step 1: beta. AVUV's beta to IWN is 1.04 , a little more than its benchmark. Step 2: what beta predicts. If AVUV were just IWN with 1.04 times the risk, it would have earned 1.0442 \u00d7 10.49 = 10.95 points above bills. Step 3: alpha. It earned 15.11 . So 15.11 \u2212 10.95 = 4.16 points a year came from something beyond beta. The scorecard, fitted weekly, prints +4.2% . Most of the 4.7 -point lead is alpha. Step 4: does the yardstick fit? R\u00b2 is 0.95 : IWN explains 95% of AVUV's weekly moves. Step 5: chance? The t-stat is 1.85 , under 2. With the scorecard's unrounded alpha of 4.15 , the margin is 4.15 \u00f7 1.85 = 2.24 points . Two margins is 2 \u00d7 2.24 = 4.48 , so the range is 4.15 \u2212 4.48 = \u22120.3 to 4.15 + 4.48 = +8.6 points . The scorecard prints \u22120.25% to +8.56% . The range includes zero : \"Not significant\". \n The question\n My fund beat its benchmark by almost 5 points a year. Is that skill or luck?\n The idea\n Three scorecard numbers answer it together. Beta: how far the fund moves for each 1% its benchmark moves. A beta of 1.2 means it tends to rise 1.2% when the benchmark rises 1%, and fall 1.2% when it falls.\n Alpha: the yearly return beyond what beta predicts. Some of a lead is just extra market risk. Alpha is what remains.\n R\u00b2: the share of the fund's weekly moves the benchmark explains, 0 to 1. Near 1, it is a good yardstick.\n \n Alpha is an estimate with a margin of error, its standard error . The t-stat is alpha divided by that margin. Below 2, the alpha could be chance. The scorecard also prints a 95% range for alpha. If it includes zero, zero alpha cannot be ruled out.\n All three use excess return : the return above Treasury bills, the near-riskless rate ( Intermediate lesson 2 ). Only that part pays for risk.\n Worked example\n The 5 steps beside the drawing at the top work this through on ETFIQ data. Point at a step to light the part of the drawing it describes.\n AVUV is an actively managed Avantis fund of cheap-looking small US companies. Its benchmark is the Russell 2000 Value Index, measured through IWN, a fund that tracks it. Window: Oct 4, 2019 to Nov 6, 2026 , 370 weekly returns. (Not a pick.)\n AVUV IWN \n Return a year 15.28% 10.61% \n Above Treasury bills 15.11 points 10.49 points \n What that means: over this window the data cannot tell skill from luck yet. Another year or so of the same lead would push the t-stat past 2.\n The common mistake\n \"A big, significant alpha proves skill.\" Check R\u00b2 first. SMH, a semiconductor fund, is measured against world stocks (ACWI). From Dec 30, 2011 to Nov 5, 2026 , its alpha was +11.7% a year with a t-stat of 2.71 : significant. But its R\u00b2 was 0.63 . World stocks explain under two thirds of a chip fund's moves.\n So that \"alpha\" is mostly a one-industry bet. Real return, but not proof of skill.\n A second mistake: ignoring the window. A short one makes the range wide.\n Check your understanding\n Pick an answer to see why. Two of three right passes the lesson.\n 1. A fund's beta to its benchmark is 1.2. The benchmark earned 8 points above bills; the fund earned 11. Roughly what is its alpha? A 3 points B 11 points C 1.4 points D 9.6 points Answer: C. 1.4 points. beta predicts 1.2 \u00d7 8 = 9.6; 11 \u2212 9.6 = 1.4. Not A: 3 ignores the extra risk. 2. A fund shows alpha of +3% a year with a t-stat of 2.4, but R\u00b2 against its benchmark is 0.40. What is the fair reading? A Proven skill B The alpha is chance C The fund has no risk D The alpha passes the chance test, but the benchmark may be the wrong yardstick Answer: D. The alpha passes the chance test, but the benchmark may be the wrong yardstick. 2.4 passes the test, but R\u00b2 of 0.40 means the benchmark explains little. Not A: a poor fit mostly measures the bet itself. 3. An alpha's 95% range is \u22121% to +5%. What can you say? A An alpha of zero cannot be ruled out B The alpha is positive C The fund lost money D Beta is above 1 Answer: A. An alpha of zero cannot be ruled out. the range crosses zero. Not B: the middle is positive, but zero is allowed. \n Takeaways\n Alpha is the return left after beta, not the whole lead. \n Check R\u00b2 first: alpha means little against a poor-fit benchmark. \n A t-stat under 2, or a range crossing zero, means the edge is unproven. \n Do it on ETFIQ\n Test the alpha of a fund you hold Your fund \n Where to next\n Next lesson: Investor philosophies as rules you can test Advanced Portfolio Design: all lessons The explainer behind this lesson ETFIQ Academy How ETFIQ computes these numbers \n Cite this page. ETFIQ, Alpha, beta and R\u00b2: is the edge real?, data as of Nov 6, 2026. https://etfiq.com/academy/advanced-portfolio-design/alpha-beta-r-squared/ Free to use with attribution for data ETFIQ computes; issuer data stays under its owner's terms. The underlying files are at Open data .\n Other forms Plain ETFIQ, Alpha, beta and R\u00b2: is the edge real?, data as of Nov 6, 2026. https://etfiq.com/academy/advanced-portfolio-design/alpha-beta-r-squared/ APA ETFIQ. (Nov 6, 2026). Alpha, beta and R\u00b2: is the edge real?. Retrieved from https://etfiq.com/academy/advanced-portfolio-design/alpha-beta-r-squared/ Markdown [Alpha, beta and R\u00b2: is the edge real? (ETFIQ, Nov 6, 2026)](https://etfiq.com/academy/advanced-portfolio-design/alpha-beta-r-squared/)","source":"ETFIQ, independent ETF data. Recomputed nightly from public filings and prices.","publisher":{"@id":"https://etfiq.com/#org","name":"ETFIQ","url":"https://etfiq.com"},"license":"https://etfiq.com/license/","license_text":"Data ETFIQ computes is free to use with attribution: ETFIQ (etfiq.com). Issuer data stays under its owner's terms.","citation":"ETFIQ, Alpha, beta and R\u00b2: is the edge real?, data as of Nov 6, 2026. https://etfiq.com/academy/advanced-portfolio-design/alpha-beta-r-squared/"}