DEFINITION of 'Jensen's Measure'
A riskadjusted performance measure that represents the average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. This is the portfolio's alpha. In fact, the concept is sometimes referred to as "Jensen's alpha."
INVESTOPEDIA EXPLAINS 'Jensen's Measure'
If the definition above makes your head spin, don't worry: you aren't alone! This is a very technical term that has its roots in financial theory.
The basic idea is that to analyze the performance of an investment manager you must look not only at the overall return of a portfolio, but also at the risk of that portfolio. For example, if there are two mutual funds that both have a 12% return, a rational investor will want the fund that is less risky. Jensen's measure is one of the ways to help determine if a portfolio is earning the proper return for its level of risk. If the value is positive, then the portfolio is earning excess returns. In other words, a positive value for Jensen's alpha means a fund manager has "beat the market" with his or her stock picking skills.

Sharpe Ratio
A ratio developed by Nobel laureate William F. Sharpe to measure ... 
RiskAdjusted Return On Capital ...
An adjustment to the return on an investment that accounts for ... 
Capital Asset Pricing Model  CAPM
A model that describes the relationship between risk and expected ... 
Alpha
1. A measure of performance on a riskadjusted basis. Alpha takes ... 
Beta
A measure of the volatility, or systematic risk, of a security ... 
Modified Dietz Method
A method of evaluating a portfolio's return based on a weighted ...

Investing
Measure Your Portfolio's Performance
Learn three ratios that will help you evaluate your investment returns. 
Mutual Funds & ETFs
Understanding Volatility Measurements
How do you choose a fund with an optimal riskreward combination? We teach you about standard deviation, beta and more! 
Options & Futures
An Introduction To Value at Risk (VAR)
Volatility is not the only way to measure risk. Learn about the "new science of risk management". 
Active Trading Fundamentals
How To Convert Value At Risk To Different Time Periods
Volatility is not the only way to measure risk. Learn about the "new science of risk management". 
Insurance
The Dangers Of OverDiversifying Your Portfolio
If you diversify too much, you might not lose much, but you won't gain much either. 
Fundamental Analysis
A Deeper Look At Alpha
The Jensen index helps investors compare realized returns to what should've been achieved. 
Options & Futures
Financial Concepts
Diversification? Optimal portfolio theory? Read this tutorial and these and other financial concepts will be made clear. 
Investing Basics
What does the end of the quarter mean for portfolio management?
Take a deeper look at why the end of a financial quarter, and all of its accompanying reports, is a significant event for portfolio management. 
Mutual Funds & ETFs
What is the difference between a hedge fund and a private equity fund?
Learn the primary differences between hedge funds and private equity funds, both of which are utilized by high net worth investors. 
Mutual Funds & ETFs
How do hedge funds determine what assets to own?
Learn about the various types of investments that hedge fund managers use, and explore basic hedge fund management trading strategies.