Jensen’s alpha measures the excess return achieved over a comparable passive investment (i.e. an investment with identical market risk or beta). Jensen’s alpha is used to assess the performance of a portfolio manager. It differs from the relative return (excess return), which is not risk-adjusted.

In the capital asset pricing model, Jensen’s alpha can be calculated from the difference between the return achieved on a securities portfolio minus the risk-free interest rate and the return expected theoretically by the model.