Jensen’s Alpha
Jensen’s Alpha is a measure of the performance of a portfolio relative to a benchmark index. It is a measure of the portfolio’s risk-adjusted return, taking into account the risk of the portfolio relative to the risk of the benchmark. It is also known as the “alpha coefficient” or “alpha value”. The alpha coefficient is calculated by subtracting the expected return of the benchmark from the actual return of the portfolio. If the alpha coefficient is positive, it means that the portfolio has outperformed the benchmark. If the alpha coefficient is negative, it means that the portfolio has underperformed the benchmark.
History of Jensen’s Alpha
Jensen’s Alpha was developed by Michael Jensen in 1968. It was originally used to measure the performance of mutual funds, but has since been applied to other investments such as stocks, bonds, and commodities. Jensen’s Alpha is a measure of the excess return of a portfolio relative to the expected return of the benchmark. It is a measure of the portfolio’s risk-adjusted return, taking into account the risk of the portfolio relative to the risk of the benchmark.
Comparison Table
| Portfolio | Benchmark | Alpha |
|---|---|---|
| 10% | 8% | 2% |
| 12% | 10% | 2% |
| 14% | 12% | 2% |
Summary
Jensen’s Alpha is a measure of the performance of a portfolio relative to a benchmark index. It is a measure of the portfolio’s risk-adjusted return, taking into account the risk of the portfolio relative to the risk of the benchmark. It is calculated by subtracting the expected return of the benchmark from the actual return of the portfolio. If the alpha coefficient is positive, it means that the portfolio has outperformed the benchmark. For more information about Jensen’s Alpha, you can visit Investopedia, The Balance, and Morningstar.
See Also
- Sharpe Ratio
- Treynor Ratio
- Information Ratio
- Sortino Ratio
- Beta
- Alpha Hedging
- Alpha Capture
- Alpha Decay
- Alpha Generation
- Alpha Arbitrage
