What does Jensen's Alpha capture in mutual funds?
Sep 24, 02:09

Besides past performance, the risk-reward profile of mutual funds is important to consider while investing. Jensen's Alpha helps with that, acting as a measure of risk-adjusted performance of a fund against its benchmark. The number captures excess return a fund has delivered over the benchmark--a positive Alpha indicating outperformance and a negative one signalling underperformance. It even helps gauge the performance of fund managers. Between two funds with the same returns, the one with higher Alpha is preferable. That said, other parameters have to be factored in along with Alpha while selecting a fund.

Gauging risk-reward profile