Capital asset pricing model
The capital asset pricing model (CAPM) model helps to gauge risk contributed by security or portfolio to its benchmark and is measured by beta (
). Using the CAPM model, we can estimate the expected excess return of an individual security or portfolio which is proportional to its beta:
Here:
- E(Ri): Expected return of security
- E(Rm): Expected return of market
- Ri: Rate of return of security
- Rf: Risk Free rate of return
- Rm: Benchmark or market return
- : Beta of the security
CVX is regressed against DJI using linear model as per equation ...
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