In investments, "alpha" is a measure of an investment's performance relative to a benchmark index. It represents the excess return of an investment compared to the return of the benchmark index. Essentially, alpha indicates how much an investment has outperformed or underperformed the market, adjusted for risk. Types of Alphas Jensen's Alpha : Definition : Jensen's alpha, named after Michael Jensen, measures the risk-adjusted performance of a portfolio. It is derived from the Capital Asset Pricing Model (CAPM). Significance : Positive Jensen's alpha indicates that the portfolio has outperformed the market after adjusting for risk. Negative Jensen's alpha suggests underperformance. Treynor-Black Alpha : Definition : The Treynor-Black model focuses on construc...
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