What does a positive Jensen's alpha indicate about my portfolio?

A positive alpha means your portfolio earned returns exceeding what the Capital Asset Pricing Model predicted given its risk level, suggesting skill contributed to performance beyond market movements.

How is Jensen's alpha different from total portfolio return?

Total return measures actual gains, while alpha measures returns above the risk-adjusted benchmark; two portfolios can have the same return but very different alpha values based on their risk exposure.

Can Jensen's alpha be negative, and what does that mean?

Yes, a negative alpha indicates your portfolio underperformed the CAPM expected return given its risk level, meaning you either took on too much risk for the returns earned or lacked skill to beat the benchmark.

What inputs are needed to calculate Jensen's alpha?

You need your portfolio's actual return, the risk-free rate, the market return, and your portfolio's beta coefficient to compute the CAPM-expected return and derive alpha.

Investing & MarketsTool Review

Jensen's Alpha Calculator

Provided byFinancial Toolsetfinancialtoolset.com

Calculate portfolio alpha with CAPM decomposition and Security Market Line chart. Determine if returns are due to ski...

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General investment calculators excess return CAPM Jensen's alpha portfolio alpha active management

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About this tool

What Jensen's Alpha Calculator does

Jensen's Alpha Calculator helps users measure whether their portfolio outperformed its risk-adjusted benchmark. By inputting actual portfolio return, risk-free rate, market return, and beta, the tool computes alpha using CAPM decomposition and displays a Security Market Line chart. The result shows the portion of return attributable to genuine skill rather than market risk, allowing investors to assess performance relative to expected returns based on their portfolio's risk profile.

Step by step

How to use the Financial Toolset Jensen's Alpha Calculator

1
Enter your portfolio's actual return percentage
2
Input the risk-free rate percentage (e.g., Treasury bill rate)
3
Provide the market return percentage for the period
4
Input your portfolio's beta coefficient
5
View the calculated alpha value and Security Market Line chart showing risk-adjusted expectations

Is it right for you

Best for

Investors and fund managers who want to determine if their portfolio returns stem from skill or simply from taking on market risk, using a standardized CAPM benchmark.

Limitations

Results depend on accurate input of beta and market return data
Alpha is a historical measure and does not guarantee future performance
Calculation assumes CAPM model assumptions hold true for the portfolio

Questions

Jensen's Alpha Calculator FAQ

What does a positive Jensen's alpha indicate about my portfolio?: A positive alpha means your portfolio earned returns exceeding what the Capital Asset Pricing Model predicted given its risk level, suggesting skill contributed to performance beyond market movements.
How is Jensen's alpha different from total portfolio return?: Total return measures actual gains, while alpha measures returns above the risk-adjusted benchmark; two portfolios can have the same return but very different alpha values based on their risk exposure.
Can Jensen's alpha be negative, and what does that mean?: Yes, a negative alpha indicates your portfolio underperformed the CAPM expected return given its risk level, meaning you either took on too much risk for the returns earned or lacked skill to beat the benchmark.
What inputs are needed to calculate Jensen's alpha?: You need your portfolio's actual return, the risk-free rate, the market return, and your portfolio's beta coefficient to compute the CAPM-expected return and derive alpha.

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