American Airlines Jensen Alpha

American Airlines Group has current Jensen Alpha of 0.1652. Jensen alpha is a measure of the returns that are attributable to the managers ability to select security and time the market. In other words it is the returns remaining after deducting what would have been attributable to beta returns (which do not require skill) and the risk free rate.

American Airlines

Jensen Alpha   =  ER[a] - RFR * (1-BETA)  -  BETA * ER[b])

=

0.1652

ER[a]	=	Expected return on investing in American Airlines
ER[b]	=	Expected return on market index or selected benchmark
BETA	=	Beta coefficient between American Airlines and the market
RFR	=	Risk Free Rate of return. Typically T-Bill Rate

Jensen Alpha Comparison

Jensen alpha is the difference between the return of the portfolio, and what the portfolio should theoretically have earned. Any portfolio can be expected to earn the risk free rate (RF), plus the market risk premium (which is given by [Beta x (Market Portfolio Return - Risk Free Rate)]. Anything remaining over and above is alpha.

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