Jensen's Alpha Calculator

Your details

Choose which variable to calculate. The other four become inputs.
The actual annual return of the portfolio or investment being evaluated, as a percentage.
%
The return of a risk-free asset, typically a short-term government bond (e.g., 3-month US Treasury bill). Usually between 1% and 6%.
%
Systematic risk of the portfolio relative to the market. Beta of 1.0 = same risk as the market; above 1.0 = more volatile; below 1.0 = less volatile. Use a negative beta for inverse strategies.
The return of the benchmark market index over the same period (e.g., S&P 500, MSCI World). Typically the same period as the portfolio return.
%
Jensen's AlphaOutperformance
0.8%%

Excess return above the CAPM-predicted return, adjusted for systematic risk

CAPM Expected Return11.2%%
Market Risk Premium6%%
0.8% %
Strong Underperformance<-3Underperformance-3--0.5Neutral-0.5-0.5Outperformance0.5-3Strong Outperformance3+

Alpha is +0.80%: risk-adjusted outperformance.

  • Your portfolio generated 0.80% more than CAPM predicted for its level of risk, indicating genuine skill or an informational edge.
  • The CAPM expected return for this risk level was 11.20%. This is the hurdle rate your portfolio must clear to add value.
  • The market risk premium (rm - rf) was 6.00%, which is the reward investors received for taking on market risk during this period.

Next stepCompare alpha across multiple periods to check consistency. A single period of positive alpha may reflect luck rather than skill.

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