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How can Jensen's Alpha formula be used to evaluate the performance of cryptocurrencies?

avatarGorman WrennDec 25, 2021 · 3 years ago3 answers

Can you explain how the Jensen's Alpha formula can be used to assess the performance of cryptocurrencies? What are the key components of this formula and how do they contribute to evaluating the performance of digital currencies?

How can Jensen's Alpha formula be used to evaluate the performance of cryptocurrencies?

3 answers

  • avatarDec 25, 2021 · 3 years ago
    Jensen's Alpha formula is a popular tool used to evaluate the performance of cryptocurrencies. It measures the excess return of a digital currency compared to its expected return, taking into account the risk-free rate and the market return. The formula consists of two main components: the actual return of the cryptocurrency and the expected return based on a benchmark. By comparing these two values, Jensen's Alpha can provide insights into whether a cryptocurrency has outperformed or underperformed the market.
  • avatarDec 25, 2021 · 3 years ago
    When using Jensen's Alpha formula to evaluate the performance of cryptocurrencies, it's important to choose an appropriate benchmark that represents the overall market performance. This benchmark can be a cryptocurrency index or a specific digital asset that closely reflects the market. By comparing the actual return of a cryptocurrency with the expected return based on the benchmark, investors can assess whether the cryptocurrency has generated positive or negative alpha, indicating its performance relative to the market.
  • avatarDec 25, 2021 · 3 years ago
    As an expert in the field of digital currencies, I can say that Jensen's Alpha formula is a valuable tool for evaluating the performance of cryptocurrencies. It allows investors to analyze the risk-adjusted returns of different digital assets and make informed investment decisions. At BYDFi, we use Jensen's Alpha formula along with other performance evaluation metrics to assess the performance of cryptocurrencies listed on our platform. It helps us identify cryptocurrencies that have the potential to outperform the market and provide better returns for our users.