[Series 65] 45, Sharpe Treynor and Jensen Performance Measures
This podcast is made by Ran Chen, who holds an EA license, Insurance and Securities licenses (Series 6, 63, 65), and the CFP® designation. He is passionate about opening access to high-quality exam preparation resources and helping learners prepare more effectively for professional certification exams.
In this episode you will learn:
- The Sharpe Ratio uses standard deviation to measure return per unit of total risk, making it ideal for non-diversified portfolios.
- The Treynor Ratio uses beta to measure return per unit of systematic risk, making it the correct choice for well-diversified portfolios.
- Jensen's Alpha is a measure of a manager's skill, calculating the excess return a portfolio earned above its expected return based on its beta.
- How the Series 65 exam tests these concepts conceptually, focusing on which measure is appropriate for a given scenario rather than complex calculations.
- A simple mnemonic to remember the key risk component for each performance measure: Sharpe for Standard Deviation, Treynor for Beta, and Jensen for Genius (Alpha).
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