Concept: M^2 (M-squared)

CFA Level I Glossary

M-squared expresses the Sharpe ratio idea in percentage return units by scaling the portfolio to market-level total risk and then comparing returns. You imagine levering or delevering the portfolio until its volatility matches the market, then compare that adjusted return with the market. Higher M-squared means better risk-adjusted performance on that scale. Do not confuse it with Jensen’s alpha, which adjusts for systematic risk rather than total volatility.

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