What is Jensen's Alpha? A Simple Explanation of Risk and Return in Investing

本站添加: 2026-05-16

[00:00:00]Jensen's alpha is one risk measure. If you have to measure it for the portfolio, this is the best risk measure. All of us have a birth right to return, right? If none of us were there and you didn't want to take any risk, what would you do? You would buy government of India paper or an FD at 6.5% 7%. Now, for ease of explanation, 7% is my birth right in this country.

[00:00:19]That's called the risk-free return. Now, let's assume I'm ready to take some risk. Let's assume half of Nifty's risk.

[00:00:24]I'm ready to take Nifty other risk. Do I deserve seven or more? More than seven?

[00:00:28]Because risk about Miller if I getting without a risk if I put some risk as a raw material to this portfolio should I get more than seven? I should get more than seven. Let's assume you take ready to take half the risk of Nifty. You can put half your money in Nifty. This portfolio will have a certain return, right? That is your now your birth right because you're putting risk. Now, let's assume seven is risk-free. If you put half your money in Nifty and half your money in an FD, if you deserve for a specific period 9% return. You deserve 9%. But if another to give 11 or anybody give you 11, is it more than the birth right? That extra is called Jensen's alpha.

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