Finance Lab
A formula is not a fact. It is a decision.
Each experiment walks the same six stages: read the formula, understand what it claims, manipulate the variables, observe the sensitivity, solve for a target, then apply it to a decision.
Investments
Beta, Sharpe, and Jensen's alpha
Sharpe = (E(R) - Rf) / SD . B = Cov(Ra, Rm) / Var(Rm)
One asset, one market. Measure how much systematic risk the asset carries (beta), how well it is paid for total risk (Sharpe), and whether it beat what CAPM says it should earn (alpha).
What each symbol means
- Asset returns (periods 1-5)
- Return of the asset in each period, in percent.
- Market returns (periods 1-5)
- Return of the market in each period, in percent.
- Risk-free rate
- Return available with no risk.