medium · FRM Part 1 Foundations of Risk Management
A risk manager compares two funds. Fund A has a Jensen's alpha of 2.0% and a beta of 0.8. Fund B has a Jensen's alpha of 2.0% and a beta of 1.4.
If an investor is adding one of these to a well-diversified existing portfolio, which fund is more attractive based strictly on Jensen's alpha?
- Fund B is more attractive because it has a higher expected total return.
- Fund A is more attractive because its Information Ratio is likely higher.
- Fund A is more attractive because it generates the same alpha with lower systematic risk.
- Both are equally attractive as they provide the same alpha.
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