Alpha is just the difference between a securities return and the return that's predicted by the security market line . The security market line is the visual representation and the graphing of the capital asset pricing model . So with the CAP…
Here we're going to discuss the difference between the alpha and the active return of a portfolio. Active return is just the difference between the actual return of a portfolio and the actual return of the market index. Let's say that we hav…
The security Market line is the line that we get when we plot the beta of different Securities and the expected return of different Securities. The security Market line is upward-sloping. The reason is that if you have more systematic risk , which i…
Jensen's alpha is the portion of the excess return of a security or a portfolio that is not explained by systematic risk and when I talk about the systematic risk I mean beta . Another way of putting it is that alpha is the difference between t…
Let's say we have an investor who's going to invest in a portfolio that includes two stocks, we've got stock A and stock B . This investor can invest in any different number of combinations. They could put 90% of the portfolio in stock…
