Jensen’s Alpha Calculator

FINANCIAL CALCULATORS Jensen’s Alpha Calculator Calculate Jensen’s Alpha for your portfolio’s excess return over CAPM prediction.
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What is the Jensen’s Alpha Calculator & How does it work?
Jensen’s Alpha is a measure of the performance of an investment compared to the performance of a benchmark index. It quantifies the difference between the actual returns of a portfolio and the expected returns as predicted by the Capital Asset Pricing Model (CAPM). A positive Jensen’s Alpha indicates that the portfolio has outperformed the benchmark, while a negative value suggests underperformance.
The formula for Jensen’s Alpha is:
alpha = R_p – [R_f + beta (R_m – R_f)]
R_p = Portfolio Return
R_f = Risk-Free Rate
beta = Beta of the portfolio
R_m = Market Return
Where:
  • R_p is the actual return of the portfolio.
  • R_f is the risk-free rate, typically the yield on a government bond.
  • beta measures the volatility of the portfolio relative to the market.
  • R_m is the expected return of the market.
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Parameters
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Frequently Asked Questions
What is Jensen’s Alpha?
Jensen’s Alpha measures how much an investment has outperformed or underperformed its benchmark, considering market risks.
How do I interpret a positive Jensen’s Alpha?
A positive Jensen’s Alpha indicates that the portfolio has performed better than expected compared to the benchmark.
What does a negative Jensen’s Alpha mean?
A negative Jensen’s Alpha suggests that the portfolio has underperformed relative to its benchmark expectations.
How is Jensen’s Alpha calculated?
Jensen’s Alpha is calculated using the formula: Ξ± = Rp – [Rf + Ξ²(Rm – Rf)], where Rp is the portfolio return, Rf is the risk-free rate, and Ξ² is the beta of the portfolio.
Can Jensen’s Alpha be used for any type of investment?
Jensen’s Alpha is typically used for equity investments to evaluate performance against market benchmarks.
What factors can affect Jensen’s Alpha?
Factors such as changes in the risk-free rate, shifts in the benchmark index, and variations in portfolio beta can affect Jensen’s Alpha.
How often should I calculate Jensen’s Alpha?
It’s recommended to calculate Jensen’s Alpha periodically, such as quarterly or annually, to monitor performance over time.

Results are for informational purposes only and do not constitute professional advice.