Jensen's Alpha Calculator
Measure investment performance with Jensen's alpha Calculator - a powerful tool for assessing risk-adjusted returns. Analyze your portfolio's performance with ease!
Related Calculators: Sharpe Ratio, Sortino Ratio, Treynor Ratio, Information Ratio, Maximum Drawdown Calculator
Jensen's Alpha Formula
Jensen's alpha is a widely used metric in finance to evaluate the risk-adjusted returns of an investment portfolio. It measures the excess return generated by a portfolio over the theoretical return predicted by the Capital Asset Pricing Model (CAPM).
The formula to calculate Jensen's alpha is:
Alpha = Portfolio Return - (Risk-Free Rate + Beta * (Market Return - Risk-Free Rate))
- Alpha: Represents the excess return of the portfolio.
- Portfolio Return: The actual return achieved by the portfolio.
- Risk-Free Rate: The rate of return on a risk-free investment, such as a government bond.
- Beta: Measures the sensitivity of the portfolio's returns to the overall market returns.
- Market Return: The average return of the market.
By calculating Jensen's alpha, investors can assess whether a portfolio has outperformed or underperformed the market, considering the systematic risk associated with the investment.
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