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Excess return

As explained in Build a Robo-Advisor with Python (From Scratch)

An investment return measured above the return of a specified risk-free benchmark.

Excess return measures investment performance above a specified risk-free benchmark. For corporate bonds, subtract the lagged short-term risk-free rate from monthly bond returns before analysis. section 3.1.3

Corporate-bond example

Corporate bonds produced 9.67% average annual raw returns and 6.36% historical excess returns. Regressing monthly excess returns on changes in 10-year Treasury yields reduced the annualized estimate to 4.26% after stripping out yield effects.

How Build a Robo-Advisor with Python (From Scratch) covers it

How deep it goes
Defines the metric, computes it from historical series, and regresses it on Treasury-yield changes before annualizing the result.
Examples
Uses corporate-bond and stock return series, with bond returns adjusted for short-term risk-free rates and Treasury-yield changes.
What it assumes
Requires synchronized asset-return and risk-free-rate series, while demonstrating resampling, benchmark subtraction, regression, and annualization.
What you can do after
Apply it via Python to calculate benchmark-adjusted returns and estimate returns after accounting for valuation changes.
How it connects
Connects risk-free rate, expected return, corporate bonds, Treasury yields, regression, credit risk, and term structure.
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Related concepts

This explainer was generated by Manning's knowledge graph from the text of Build a Robo-Advisor with Python (From Scratch). The section links point to the parts of the book it draws on.