Which of the following performance measures is the most rigorous risk-adjustment process separating systematic and unsystematic risk?
A) Treynor ratio
B) Sharpe ratio
C) Jensen's Alpha
D) Information ratio
E) Sortino ratio

Question

Quizplus · Accepted Answer

Jensen's Alpha measures the excess returns of a portfolio compared to its expected returns, after adjusting for systematic risk (measured by beta). This makes it the most rigorous risk-adjustment process separating systematic and unsystematic risk. The other ratios (Treynor, Sharpe, Information, and Sortino) all adjust for risk, but do not differentiate between systematic and unsystematic risk to the same extent as Jensen's Alpha.

Which of the Following Performance Measures Is the Most Rigorous