InsidersTradesSigma
Performance & Risk Metrics
The excess return of a portfolio or trading strategy relative to its expected return as predicted by the Capital Asset Pricing Model, adjusted for systematic risk exposure.
Jensen's Alpha measures whether a portfolio manager or algorithmic strategy generates true alpha (skill-based outperformance) or merely captures returns attributable to systematic market risk exposure. In insider-trading and quant scoring contexts, Jensen's Alpha isolates the genuine alpha contribution of insider activity signals or conviction scores by removing the confounding effect of beta. A positive Jensen's Alpha indicates the strategy outperformed its CAPM benchmark; negative alpha suggests underperformance after risk adjustment. This metric is critical for attributing performance to signal quality rather than market timing or correlated factor exposures.
Within a quant scoring platform, Jensen's Alpha serves as a backtesting and forward-testing validation metric for insider activity signals and conviction indices. By decomposing total excess return into alpha and beta components, compliance and risk teams can verify that abnormal returns from insider transaction patterns reflect genuine predictive edge rather than sector momentum or market-wide rallies. Tracking Jensen's Alpha decay over rolling periods identifies signal persistence and deterioration, informing model refresh cycles and weighting adjustments.
Formula