Security characteristic line (SCL) is a
regression line, plotting performance of a particular security or portfolio against that of the
market portfolio at every point in time. The SCL is plotted on a graph where the Y-axis is the excess return on a security over the
risk-free return and the X-axis is the excess return of the market in general. The slope of the SCL is the security's
beta, and the intercept is its
alpha
Alpha (uppercase , lowercase ) is the first letter of the Greek alphabet. In the system of Greek numerals, it has a value of one. Alpha is derived from the Phoenician letter ''aleph'' , whose name comes from the West Semitic word for ' ...
.
Security Characteristic Line
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Formula
:
where:
:''α''''i'' is called the asset's alpha
Alpha (uppercase , lowercase ) is the first letter of the Greek alphabet. In the system of Greek numerals, it has a value of one. Alpha is derived from the Phoenician letter ''aleph'' , whose name comes from the West Semitic word for ' ...
(abnormal return)
:''βi''(''R''''M'',''t'' – ''Rf'') is a nondiversifiable or systematic risk
:''ε''''i'',''t'' is the non-systematic or diversifiable, non-market or idiosyncratic risk
:''R''''M'',''t'' is the return to market portfolio
:''Rf'' is a risk-free rate
See also
* Security market line
* Capital allocation line
* Capital market line
* Modern portfolio theory
References
External links
Security characteristic line calculatorCAPM and the Characteristic LineChapter 7 CAPM Chapter 13
{{DEFAULTSORT:Security Characteristic Line
Investment