There is no point reaching for a calculator that cannot show its working. This one starts from beginning portfolio value, ending portfolio value, risk-free rate, market rate of return and portfolio’s beta and reports portfolio’s return and jensen’s alpha, so you can see how each answer follows from the numbers you entered.
What Is the Jensen's Alpha Calculator?
The jensen's alpha calculator takes beginning portfolio value, ending portfolio value, risk-free rate, market rate of return and portfolio's beta and turns them into portfolio's return and jensen's alpha.
It is the kind of calculation you would otherwise do on the back of an envelope: mechanical, repeatable and easy to get subtly wrong without noticing.
How the Jensen's Alpha Figure Is Built
Each result is calculated from the ones before it, so the working is fully visible. That matters when the answer is going to be quoted to somebody else and you need to be able to explain where it came from.
The figures are exactly as good as the assumptions underneath them. Check the rates, the periods and the tax treatment before you rely on the result.
Reading the Result Sensibly
A small change in an input can move the result by much more than you would expect, particularly where the calculation divides by one of the figures you supplied. That is worth understanding before you rely on a figure.
For anything that will be committed to, write the inputs down beside the result. A number you can reproduce is worth far more than one you cannot explain.
A Worked Example
Working through an example, with beginning portfolio value set to 10, ending portfolio value set to 5, risk-free rate set to 2, the calculator returns portfolio's return of -0.5, and jensen's alpha of -982.5. Substitute your own figures and the same steps produce the same kind of answer.
Frequently Asked Questions
What do I need to work out portfolio's return?
Enter beginning portfolio value, ending portfolio value, risk-free rate, market rate of return and portfolio's beta. The calculator then works through the relationship and reports portfolio's return and jensen's alpha.
What does the jensen's alpha actually calculate?
It takes beginning portfolio value, ending portfolio value, risk-free rate, market rate of return and portfolio's beta and converts them into portfolio's return and jensen's alpha using the standard relationship for this problem. Each step is applied in turn, so every output is traceable back to the numbers you typed in.
How should I enter beginning portfolio value?
Use the value you actually have, in the unit shown next to the field. Enter every value in the same unit system. The calculator assumes the figures you supply are consistent, so it cannot correct a mistake that happens before the calculation starts.
Why does a small change in one value move the answer so much?
That happens when an output depends on a ratio, because dividing by a small number magnifies any change in it. Check the units first, then check whether the value you entered is in the range the relationship was designed for.
Do I have to fill in every field?
Only the fields a particular result depends on. If you leave one blank, the results that need it simply show a note instead of a number, and everything else still works.