When __________ of an asset is better than the comparable market measure, ___________ is also better than the market.
A) the Sharpe ratio; the Treynor ratio
B) Jensen's alpha; the Sharpe ratio
C) the raw return; Jensen's alpha
D) Jensen's alpha; the Treynor ratio
E) the Treynor ratio; the raw return

Question

Quizplus · Accepted Answer

Jensen's alpha measures how the asset has performed relative to its expected return, while the Treynor ratio measures the excess return of the asset over the risk-free rate compared to its beta. If an asset has a higher Jensen's alpha, it means that it has outperformed its expected return, which is better than the market. When combined with a higher Treynor ratio, it shows that the asset has also outperformed the market when considering its level of risk.

When __________ of an Asset Is Better Than the Comparable