Reading 32- issues

[Reallyfrustrated]

When it comes to macro / micro attribution and the jensen’s alpha/ M2 / sharpe ratio / info ratio, etc. Where can i get good expanatory notes and hands on examples? I struggle remembering an understanding these topics.

 

[pokhim]

Need to remember this mate.
Jensens alpha is excess return over systematic risk
Sharpe is excess return over total risk
M2 is what would the return be if the risk was same as the market
Information Ratio is what is the active return / active risk.
Might be a good idea to do a 100 questions on them and you should nail it. Try to remember the forumlas and remember that Jensen alpha is good for Beta risk and Sharpe is good for Total Risk… The exam may ask you when each one should be used…i.e. a highly diversified portfolio would use Jensens alpha etc.

 

[kyleCFA1]

Pokhim, I think your definition of Jensens alpha is acutally the Treynor ratio.
Isn’t Jensens alpha just calculated as return - CAPM expected return?

 

[whatsyourgovt]

^youre right
good notes tho, i forgot all about m2

 

[cgy5478]

Beta as a measure of risk:
Jensen’s alpha = return - CAPM expected return
Treynors measure = (expected return - RF)/Beta, which is the slope of the line plotted on the graph (return/beta)
Total risk as the measure
Sharpe Ratio = (expected return - RF)/Total Risk, the slope of the line plotted on the graph (return/total risk)
M2 = the theoratical return if the portolio had the same risk as the market - RF + (portfolio return - RF)*market risk/portolio risk
Active risk as the measure
Information Ratio = active return per unit of active risk

 

[zulu007]

Thanks