Jensen's Alpha Calculator

Calculate Jensen's Alpha to measure portfolio performance against market benchmarks. Analyze risk-adjusted returns and evaluate investment manager skill.

✓ Risk-Adjusted Returns ✓ CAPM Analysis ✓ Performance Evaluation

Jensen's Alpha Calculator

Portfolio Performance Data

Annual portfolio return percentage

Market benchmark return percentage

Risk-free rate (Treasury bills)

Portfolio's systematic risk measure

Additional Analysis Options

Portfolio volatility (optional)

Market volatility (optional)

Analysis time period

Correlation coefficient (-1 to 1)

Jensen's Alpha Formula

Risk-adjusted performance measure

Alpha Formula:

α = Rp - [Rf + β(Rm - Rf)]
Where: Rp = Portfolio Return, Rf = Risk-free Rate, β = Beta, Rm = Market Return

Portfolio Examples

Outperforming Portfolio
High return, positive alpha
Market-Matching Portfolio
Beta = 1, alpha near zero
Underperforming Portfolio
Negative alpha, poor selection

Alpha Interpretation

Positive Alpha: Outperforming market
Zero Alpha: Market performance
Negative Alpha: Underperforming market
Higher Alpha: Better manager skill

Related Metrics

📊 Sharpe Ratio: Risk-adjusted return
📈 Treynor Ratio: Return per unit of systematic risk
⚖️ Information Ratio: Active return vs tracking error
🎯 Beta: Systematic risk measure
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Understanding Jensen's Alpha

Jensen's Alpha measures the excess return of a portfolio over what would be expected given its level of systematic risk (beta). It indicates whether a portfolio manager has added value through stock selection and market timing.

  • Risk-Adjusted Performance: Accounts for systematic risk
  • Manager Skill: Measures active management effectiveness
  • CAPM Based: Uses Capital Asset Pricing Model
  • Benchmark Comparison: Relative to market performance

Applications

Portfolio Evaluation

Assess whether portfolio managers are adding value beyond market returns.

Fund Selection

Compare mutual funds and investment managers on risk-adjusted basis.

Performance Attribution

Separate skill-based returns from market-driven returns.

Investment Strategy

Evaluate active vs passive investment approaches.