What Is Jenson's Alpha? Overview, How It's Calculated

What Is Jensen's Alpha? Overview, How It's Calculated

By Kristi Waterworth – Updated Sep 11, 2025 at 7:48 PM | Fact-checked by Frank Bass

Key Points

Jensen's Alpha measures whether an asset outperforms, underperforms, or matches its benchmark.
Positive alpha indicates superior performance; negative alpha suggests underperformance.
Calculate alpha using returns, risk-free rate, benchmark returns, and beta of the investment.

Everybody wants to beat the market -- after all, that's the point of buying individual stocks, isn't it? Well, if that's your goal, there's one important metric to understand: Jensen's alpha. Read on to learn more about this magic number and why it matters so much.

Loading paragraph...

A person using a calculator with financial charts on the desk. — Image source: Getty Images.

Loading image...

Loading paragraph...

How to Calculate the Cost of Debt Pre-Tax

For investors, it's important to know how much a company has to pay in interest in order to maintain its debt.

Essential Financial Formulas You Should Know

If you're going to become an investor, there are a few things you should know — like these formulas. Keep reading to learn more.

How to Calculate an Annual Return With Stock Prices

This percentage can be a preferable metric when you want to evaluate how successful an investment has been.

How to Calculate Price-Weighted Average for Stocks

A price-weighted average is used to give higher-priced stocks more influence in an index.

Loading hub_pages...

Loading paragraph...

About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

TMFMaldivesBlue

@MaldivesBlues

The Motley Fool has a disclosure policy.