Portfolio Optimization Using Sharpe, Treynor, and Jensen Measures: Evidence from IT Sector Stocks

Abstract

This study investigates portfolio optimization using risk-adjusted performance measures—Sharpe Ratio, Treynor Ratio, and Jensen’s Alpha—with empirical evidence from the Indian IT sector. The analysis is based on secondary data collected from seven major IT companies (TCS, Infosys, Wipro, HCL Technologies, Tech Mahindra, LTTS, and Mphasis) listed on the National Stock Exchange, covering the period from January 2021 to December 2025. The study employs the Markowitz mean-variance framework for portfolio construction and the Capital Asset Pricing Model (CAPM) for performance evaluation. The optimized portfolio generated an average return of 14.7% (Rp = 0.147) with a standard deviation of 0.189 and a beta of 1.12, indicating moderate volatility and higher market sensitivity. The Sharpe Ratio (0.43), Treynor Ratio (0.073), and Jensen’s Alpha (1.02%) reveal varying perspectives on portfolio efficiency. Inferential statistical tests, including ANOVA (F = 5.67, p < 0.05) and one-sample t-test (t = 3.87, p < 0.01), confirm significant differences among performance measures and the existence of excess returns. The findings highlight that IT sector portfolios can deliver superior risk-adjusted performance, with Jensen’s Alpha emerging as the most reliable evaluation metric.