Jensen Alpha

First of all, we would like to use the Jensen Alpha to find the difference between rate of return of our portfolio and rate of return of market. In other word, the excess return from the systematic risk. Then, we could analyze the performance of our portfolio. We believe that a better portfolio should have a bigger Jensen Alpha. We not only focus on the positive rate of return of our portfolio, but also care how much of the profit exceed the return of the market portfolio. A best portfolio should have a maximum Jenson Alpha. In this case of our portfolio, we believe that the Jenson Alpha arrives a high value relatively. In the chart, we can find that our Jensen Alpha is 0.001314. Under the Markowitz model, I believe that we already get the greatest weight of each stock. At the same time, from the rate of return which without the tax rate and trade fee, our rate is higher than the rate of return of market. From this angle, we believe our portfolio is more sufficient than the market portfolio. Not only because of the rate of return, but also the higher Jensen Alpha.

In addition, we would like to use the information ratio to track the performance of our portfolio. We believe when we track our portfolio, we want to use the information ratio to measure the amount of marginal profit which we can gain from the marginal risk. In other words, the higher the information ratio, the better the portfolio. In our portfolio, our information ratio is 0.412288. Again, under the Markowitz model, the rate of return of our portfolio is higher than the rate of return of market which means our information ratio is also higher than the market. When an investor want to know our expected return of our portfolio, the information ratio is very important to us. It can give us the prediction of the stability of our portfolio return. Then, we can determine whether we need to afford more or less risk. In this case of our portfolio, we believe that we afford the best level of risk to maintain the stability our portfolio.