Jensen Alpha | Jensens Alpha | Ratio | Definition | What is Jensen's Ratio?

Jensen Alpha

Jensen Alpha | Definition

The average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. Developed by Michael C. Jensen, this measure of a portfolio's alpha value is the most widely used measure of the risk to return trade-off. Also known as is the abnormal return or the risk adjusted excess return.

In Russell Style Classification (RSC), the Jensen alpha is calculated as follows:

Where	Equals
p	Jensen alpha
_ rp	Average return of the portfolio
_ rf	Average return of the risk-free proxy
_ rm	Average return of the benchmark proxy
p	Beta of the portfolio

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