The risk-free rate is the theoretical rate of return of a zero-risk investment. While all investments have some risk, US government debt is usually considered “safe” across the industry. Thus, the Alpha Platform uses a 1-year interpolated US treasury rate as its risk-free rate.

First, the 1-year treasury rates are converted to effective daily rates. The daily 1-year treasury rates can be found on the US Department of Treasury website.

Next, the effective daily rates are compounded over time.

Finally, the compounded rate is annualized.