# Jensen's Alpha

*Risk & Portfolio — Finicade finance glossary*

Jensen's alpha is the return a portfolio earned beyond what CAPM says its beta deserved. It was the first rigorous attempt to separate skill from leverage, and the answer for most funds was uncomfortable: alpha near zero before fees and negative after. Its weakness is model dependence — much of what looked like alpha in single-factor tests turned out to be exposure to size, value and momentum once multi-factor models arrived.

**Formula:** `α = Portfolio return − [Risk-free + β × (Market return − Risk-free)]`

**Also known as:** Jensen alpha, Jensens alpha, CAPM alpha

**Related terms:** [Alpha](https://finicade.com/glossary/alpha), [CAPM (Capital Asset Pricing Model)](https://finicade.com/glossary/capm), [Beta](https://finicade.com/glossary/beta), [Treynor Ratio](https://finicade.com/glossary/treynor-ratio), [Efficient-Market vs Factors](https://finicade.com/glossary/multi-factor-models)

Source: https://finicade.com/glossary/jensen-s-alpha