To calculate the total/MV/interest return alpha, we begin by determining the total/MV/interest investment return for each complete period, such as from a deal’s closing date to the most recent reporting date. This is achieved by compounding the portfolio’s monthly (or periodic) total/MV/interest return since the closing date. We then annualise the total/MV/interest portfolio return and compare it with the annualised return of the index. The difference represents the total/MV/interest return alpha, as illustrated here.
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