What does a positive Jensen's alpha indicate about a portfolio?

A positive Jensen's alpha indicates that a portfolio has outperformed relative to its risk-adjusted expectations. Jensen's alpha is a measure of the excess return generated by a portfolio beyond what would be predicted by its beta, which reflects its systematic risk in relation to the market. A positive alpha signifies that the portfolio manager has added value through their investment decisions, achieving returns greater than what would have been expected given the portfolio's level of risk.

In contrast, a negative Jensen's alpha would indicate underperformance against the risk-adjusted benchmark, while a zero alpha would suggest that the portfolio's performance is perfectly aligned with expectations based on its beta. Higher volatility is not directly related to Jensen's alpha itself; rather, it pertains to the variability of returns and is measured by standard deviation or beta, but it does not impact the sign of Jensen's alpha directly. Therefore, a positive Jensen's alpha reflects a favorable assessment of the portfolio's performance, highlighting its ability to deliver higher returns than expected when adjusting for risk.