| Information ratio | Ratio of alpha to the standard deviation of diversifiable risk.
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| Regression equation | An equation that describes the average relationship between a dependent variable and a set of explanatory variables.
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| Residuals | Parts of stock returns not explained by the explanatory variable (the market-index return). They measure the impact of firm-specific events during a particular period.
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| Scatter diagram | Plot of returns of one security versus returns of another security. Each point represents one pair of returns for a given holding period.
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| Security characteristic line | A plot of the excess return on a security over the risk-free rate as a function of the excess return on the market.
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| Single-factor model | A model of security returns that acknowledges only one common factor. See factor model.
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| Single-index model | A model of stock returns that decomposes influences on returns into a systematic factor, as measured by the return on a broad market index, and firmspecifi c factors.
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| Tracking portfolio | A portfolio constructed to have returns with the highest possible correlation with a systematic risk factor.
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