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Jensen Alpha In A Nutshell

Let us use this in an example. You are searching funds and find two that are the same return and other stats. Using the Jensen Alpha, you may be able to see which one is taking on less risk to obtain those returns compared to the other that may be using more risk to generate those returns. That means one may have greater volatility and many investor attempt to eliminate that aspect of the portfolio.

Alpha is the measure of return for a given equity, portfolio, or investment. This data point is what we want to maximize without increasing factors such as risk or cost. Jensen Alpha measures return but takes into account a risk-adjusted aspect of the alpha. Using this alpha will also utilize CAPM and take into account the product or portfolio beta number. Beta is the correlation to the underlying market and how it reacts, with a 1 being a lock step with the underlying.

Closer Look at Jensen Alpha

Everybody looks at returns and the factors that go into them individually, but we all are searching for the same. Less risk for greater returns. Jensen Alpha helps to take into account the risk aspect but that doesn’t mean it is the stopping point, but merely a directional indicator. Look at fundamentals and historical performance to gain a better understand and what you can expect going forward.

Generate Optimal Portfolios

The classical approach to portfolio optimization is known as Modern Portfolio Theory (MPT). It involves categorizing the investment universe based on risk (standard deviation) and return, and then choosing the mix of investments that achieves the desired risk-versus-return tradeoff. Portfolio optimization can also be thought of as a risk-management strategy as every type of equity has a distinct return and risk characteristics as well as different systemic risks, which describes how they respond to the market at large. Macroaxis enables investors to optimize portfolios that have a mix of equities (such as stocks, funds, or ETFs) and cryptocurrencies (such as Bitcoin, Ethereum or Monero)
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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bonds Directory module to find actively traded corporate debentures issued by US companies.

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