Benchmark comparison

Every backtest tracks a benchmark ticker over the identical period and folds a full head-to-head into the report. This page explains what the benchmark comparison shows, how to read each figure, and how two of the core statistics are computed. The Backtester is available to Free, Pro Lite, and Pro accounts.

Before you begin

Sign in and run a backtest first. For the steps, see Run your first backtest.
Set a benchmark ticker in Step 5 of the form. The default is SPY. For the field, see Inputs and settings.

Quickstart

Set a benchmark
In Step 5 of the Backtester form, enter a benchmark ticker such as SPY, QQQ, or VTI.
Run the backtest
Select Run backtest and wait for the report to appear.
Overlay the benchmark line
On the equity curve, select Show benchmark to add the dashed grey benchmark line.
Open the Benchmark section
Scroll to the Benchmark section for the full side-by-side comparison.

What it shows

The benchmark appears in three places: as a dashed line on the equity curve, as a small set of versus-benchmark tiles in the Risk section, and as a dedicated Benchmark section. The Benchmark section holds the parts described in the following subsections.

Side-by-side comparison

The portfolio against the benchmark on total return, compound annual growth rate, final value, and volatility.

Excess-return column

Outperformance: the annualized return above the benchmark.
Alpha: the annualized excess return after adjusting for market exposure.
Information ratio: the excess return per unit of tracking risk.

Risk-profile column

Beta: the portfolio's sensitivity to the benchmark.
Correlation: how closely the two move together.
Tracking error: how far the portfolio's day-to-day path deviates from the benchmark.

Capture ratios

Up capture: how much of the benchmark's up moves the portfolio captured.
Down capture: how much of its down moves the portfolio captured.
Hit rate: the share of months the portfolio beat the benchmark.

Annual returns table

Per calendar year, the portfolio return, the benchmark return, and the difference between them.

Inputs

The comparison takes one input: the benchmark ticker in Step 5, default SPY, forced to uppercase. Any ticker can be the comparison line. On the equity curve, the Show benchmark checkbox toggles the dashed benchmark line on and off.

Outputs and how to read them

Outperformance and the annual difference: positive (green) means the portfolio beat the benchmark over that window, and negative (red) means it lagged.
Beta: a beta near 1 means the portfolio moved roughly in line with the benchmark, above 1 means it amplified the benchmark's moves, and below 1 means it dampened them.
Alpha: positive alpha means the portfolio added return beyond what its market exposure alone would explain.
Up and down capture: capturing more of the up moves than the down moves is the favorable pattern. Up capture above 100 percent and down capture below 100 percent is the ideal combination.
Tracking error and the information ratio: a low tracking error means the portfolio hugged the benchmark, and a high information ratio means the excess return was large relative to how far it strayed.
Hit rate: above 50 percent means the portfolio beat the benchmark in more months than not.

How it is calculated

Two of the core statistics show the standard math: beta and the up-capture ratio. Both are transparent calculations on the simulated daily returns, not a proprietary model.

Beta

Beta measures how strongly the portfolio moved with the benchmark.

beta = covariance(r_p, r_b) / variance(r_b)

In this formula, r_p is the portfolio's daily return and r_b is the benchmark's daily return over the same days. Covariance measures how the two move together, and variance measures how much the benchmark moves on its own. For example, a beta of 1.20 means that when the benchmark moved 1 percent, the portfolio tended to move about 1.2 percent in the same direction, so it amplified the market by roughly 20 percent. A beta below 1 means the portfolio moved less than the market.

Up-capture ratio

The up-capture ratio measures how much of the benchmark's gains, during the periods when the benchmark rose, the portfolio captured.

up capture = portfolio return in up periods / benchmark return in up periods × 100

Here both returns are measured only over the periods in which the benchmark rose. For example, if the benchmark gained 20 percent across its up periods and the portfolio gained 24 percent over the same periods, the up capture is 24 divided by 20, times 100, which is 120 percent. The portfolio captured more than the full upside. The down-capture ratio uses the same formula over the periods in which the benchmark fell, where a reading below 100 percent is favorable because the portfolio lost less than the benchmark.

Data and timing

The benchmark line and statistics use the same starting capital tracked in the benchmark ticker over the identical period, from AlphaVantage end-of-day prices, with quotes delivered through AlphaVantage from Nasdaq. The comparison is computed once when the run finishes.

Use cases

Judge whether a strategy actually beat a broad market index after accounting for the risk it took.
Check whether outperformance came from added value (alpha) or only from taking more market risk (beta).
Use capture ratios to see whether a strategy holds up better in down markets than the index.

Limitations and disclosures

The comparison is hypothetical and reconstructs the past. It is not a prediction, and past performance does not guarantee future results. Alpha and beta are estimates from historical daily returns and can shift as the window changes. A benchmark with a different risk profile from your portfolio makes the raw return difference less meaningful, which is why the risk-adjusted figures matter.

GNG Research provides equity research and educational tools, not investment advice. Nothing on the platform is a recommendation to buy or sell any security. Do your own research and consider your circumstances before making any investment decision.