Jensen's alpha

Jensen's Alpha is a fancy way of measuring how well someone did with their investments compared to what they were supposed to do. It's like when your parents expect you to get a certain grade on a test, and you get a higher grade than expected.

What Jensen's Alpha does is it looks at how much money someone made compared to how much money they were supposed to make based on the amount of risk they took. Think of risk like jumping off of a high diving board - the higher you jump, the more risky it is.

If someone took a big risk by jumping off the highest diving board and made a lot of money, but only made what they were supposed to make for taking a smaller risk, then their Jensen's Alpha would be negative. This means they didn't do as well as they should have based on the risk they took.

But if someone took a smaller risk, like jumping off a lower diving board, and made more money than they were supposed to, then their Jensen's Alpha would be positive. This means they did better than expected based on the risk they took.

So, Jensen's Alpha is just a fancy way of seeing if someone did a good job investing their money by comparing how much money they made to how much money they should have made based on the risk they took.