Alpha = Return of the fund - [Risk free rate + Beta * (Return of the market ptfl - Risk free rate)]
Hey, plz refer to the above, you see the second part on the right is the return predicted by the CAPM. so alpha on the left (Jensen's alpha, to be precise) is the excess return of the fund relative to the return of the benchmark (the market ptfl). For instance, if CAPM estimates that a portfolio should earn 6% based on the risk of the portfolio but the portfolio actually earns 8%, the portfolio's alpha would be 2%. This 2% is the excess return over what was predicted in the CAPM model. ppl usually use it as a measure of fund manager's skills