BizSugar.com › Finance › How to calculate Alpha of your portfolio

So you decided to invest your hard-earned money, and now you want to evaluate whether it was the right decision. To do so, you need to calculate the Alpha of your portfolio.

Alpha, or Jensen Index (invented my Michael Jensen in the 1970s) is an index that is used in some financial models such as the capital asset pricing model (CAPM) to determine the highest possible return of an investment for the least amount of risk.

In other words, Alpha measures how well an investment performed compared to its benchmark.