Excess return

If a stock rose 6% over a week and the market rose 5%, its excess return is about 1%. That 1% is the part that had something to do with the stock rather than with the weather.

It matters whenever you’re judging whether something works. Say a signal tells you to buy, and the positions it picked averaged +4% over the following week. Impressive — until you notice the market rose 4% that week too, and a coin flip would have done as well. Measured as excess return, the signal scored about zero, which is the honest number.

BotStock measures excess against a benchmark index, usually SPY. You’ll see it wherever a claim is being made about whether something predicts anything, rather than about what your account is worth.