Jensen Alpha

Measures the extent to which a fund has added value relative to a benchmark. The Jensen Alpha is equal to a fund’s average return in excess of the risk-free rate, minus the beta* times the benchmark’s average return in excess of the risk-free rate.

Where RI = Return for Period I
Where RDI = Benchmark Return for Period I
Where N = Number of Periods
Where LI = 1 (IF RI ≥ RDI AND RDI < 0) ELSE 0
Where LDI = 1 (IF RDI < 0) ELSE 0

                N
T = ( Σ LI )
            I = 1
                     N
TD = ( Σ LDI )
                  I = 1
Down Percentage Ratio = T ÷ TD

*See Beta calculation on page 65.

Investors who are required to select and monitor investment managers should develop a basic understanding of investment statistics. Quantitative tools can provide you with good insight that you can use in your qualitative interviews with managers and when monitoring your investments.