The most widely known model for estimating the expected return of a security is the capital asset pricing model where it's modeling the expected return as a function of a single factor which is capturing systemic risk. This systemic risk is bet…
We start by looking at the capital asset pricing model and we modeled the expected return of security (Ri) as a function of the risk-free rate of return plus beta for that security which is a measure of systemic risk and then we multiply that by …
If we go back to the capital asset pricing model , you’ll see that the expected return of security (Ri) is equal to the risk-free rate of return (Rf) plus beta (βi) for the security, which is a measure of systemic risk and we multiply that by th…
Alpha is just the difference between a securities return and the return that's predicted by the security market line . The security market line is the visual representation and the graphing of the capital asset pricing model . So with the CAP…
Here we're going to discuss the difference between the alpha and the active return of a portfolio. Active return is just the difference between the actual return of a portfolio and the actual return of the market index. Let's say that we hav…
Jensen's alpha is the portion of the excess return of a security or a portfolio that is not explained by systematic risk and when I talk about the systematic risk I mean beta . Another way of putting it is that alpha is the difference between t…
