Alpha vs. Beta
Alpha is return unexplained by a stated benchmark or model, while beta estimates sensitivity to a selected market or risk factor.
Asset-pricing concepts that connect expected return with systematic risk, beta, and the market portfolio.
CAPM and related pricing models connect expected return with exposure to market-wide risk. The framework starts with the market portfolio, estimates sensitivity through beta, and uses the capital asset pricing model to relate that exposure to an expected market risk premium.
The capital market line applies to efficient portfolios and uses total volatility. The security market line applies the CAPM relationship to securities and portfolios using beta. Alpha versus beta, unlevered beta, and the zero-beta portfolio address narrower measurement and model questions.
These models depend on assumptions and estimated inputs. Benchmark scope, return frequency, sample period, currency, leverage, risk-free rate, and market-premium estimate can materially change the result. Use them as transparent analytical frameworks, not as guarantees of future return or universal portfolio instructions.
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Alpha is return unexplained by a stated benchmark or model, while beta estimates sensitivity to a selected market or risk factor.
The capital market line shows model-efficient combinations of a risk-free asset and the market portfolio using expected return and total volatility.
CAPM links an asset's expected return to a risk-free rate, market risk premium, and beta exposure to systematic market risk.
The theoretical portfolio of all risky assets in market-value weights, including its CAPM role, index proxies, and measurement limits.
The security market line plots CAPM expected return against beta and shows the model-implied return for systematic market exposure.
Unlevered beta estimates systematic asset or business risk after removing the modeled effect of financial leverage from equity beta.
A zero-beta portfolio targets approximately zero estimated sensitivity to a named market benchmark while retaining other risks and gross exposure.