CAPM, Sharpe, Jensen, Treynor

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CAPM asserts that the expected return on a given asset should be equal to the risk -free interest rate plus a risk premium.

Sharpe ratio measures the amount of "excess return per unit of volatility" provided by a fund. Excess return of the fund divided its volatility.



Jensen Alpha is defined as the difference between the realized return and the return predicted by the CAPM.

Treynor ratio conceptually, the generalized Treynor ratio is the abnormal return of a portfolio per unit of weighted-average systematic risk.


-notes from Handbook of Hedge Funds by Francois-Serge Lhabitant, formula graphics are original


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