Which formula best represents how to determine portfolio alpha?

The correct formula to determine portfolio alpha is represented by the difference between the portfolio return and the benchmark return. Portfolio alpha quantifies the excess return that an investment portfolio generates relative to its benchmark, which is typically an index that reflects the market or a specific segment of it.

Calculating alpha involves assessing how well a portfolio has performed compared to the benchmark, adjusting for the risk taken. A positive alpha indicates that the portfolio has outperformed the benchmark, suggesting effective management or selection of investments, while a negative alpha indicates underperformance.

In other options, while they may relate to concepts in finance, they do not specifically represent the calculation of alpha. For instance, return on investment minus risk-free rate provides insight into excess return but does not connect to a benchmark's performance directly. Similarly, rate of return divided by volatility offers a risk-adjusted return measure (often referred to as the Sharpe ratio), but again, it does not measure alpha. Expected return minus expected tracking error fails to provide a direct relationship to benchmark returns, which is central to calculating alpha effectively.