Alpha/Jensen index of a Security

Here is a trading indicator to calculate the Jensen index or alpha of a particular security. When evaluating the return of a security or a fund, it is important to take into account the risk. The alpha indicator helps you achieve this by measuring risk premiums in terms of beta. Although, Alpha is mainly used to evaluate portfolio returns (diversified portfolios), you can still use it to assess some securities and ETFs.

A positive alpha of 5 tells us that the stock or fund has outperformed its benchmark by 5 percent. It also tells us that the security is more volatile than the market or benchmark index.
A negative alpha of -5 tells us that the stock or fund has underperformed its benchmark by 5 percent. In this case, the security is less volatile than the market.

Example of usage:
- Display the alpha of a stock on a chart
- The benchmark here is the S&P 500 Index
- The risk free rate is 5% (You can use a time series instead of a fixed value)
- The period is 250 (about one year)
- Formula:

a = alpha(close, GetSeries("^GSPC", close), 5, 250);
plot(a, "");

Note: The Alpha or Jensen index indicator requires the Covariance function. Please download this function before using the Alpha indicator.

Technical Analysis

• Maximum Drawdown Composite Indicator
• watchlist2
• Vertical Horizontal Filter (VHF)
• Intraday Data for Major Stock Exchanges
• Price and Volume Trend
• Swing Trading Indicator (STI)
• VIX FIX: Volatility Measure by Larry Richard Williams
• Indicator Switch
• Ascending and Descending Triangle Patterns
• Stocks outperforming the S&P 500 with low volatility
• More trading objects...

Fundamental Analysis

• Fundamental Valuation Ratios for US Stocks
• Advancing-Declining Industries
• Bankruptcy Filings - Chapter 7
• Number of IPOs per Day - Trading Composite
• ASX - Short Selling
• US Consumer Sentiment
• Historical Earnings Calendar Data for U.S. Stocks - Date/Time and EPS
• Short Ratio Index
• Stock repurchase plans (Buybacks)
• Trade Weighted Exchange Index
• More trading objects...