Capital Asset Pricing Model (CAPM)

Formula:
Ri = Rf + βi × (Rm - Rf)
Formula Terms:
  • R_i:Expected return of stock i
  • R_f:Risk-free rate (e.g., 10-year Treasury yield)
  • β_i:Beta coefficient - measures stock sensitivity to market movements
  • R_m:Expected return of the market portfolio
  • (R_m - R_f):Market risk premium - excess return over risk-free rate
Description:

CAPM is a single-factor model that explains the relationship between expected return and risk. It assumes that the expected return of a security equals the risk-free rate plus a risk premium based on the security's beta.

Factors:
  • Beta (β):Measures the sensitivity of stock returns to market returns
    Source: Calculated from historical data using regression analysis
  • Market Return (R_m):Return of the market portfolio (typically S&P 500)
    Source: Yahoo Finance: ^GSPC
  • Risk-Free Rate (R_f):Return on risk-free assets (typically 10-year Treasury yield)
    Source: FRED API: DGS10 or Treasury.gov
How to Use:

Use CAPM to estimate expected returns, calculate cost of equity, and assess market risk exposure.

Data Sources:
  • Yahoo Finance: Market data (^GSPC)
  • FRED API: Risk-free rate (DGS10)
  • Treasury.gov: 10-year Treasury yield

Welcome to Factor Model Analysis Platform

Select stocks and a factor model, then click "Run Analysis" to begin.

Results will be displayed on a separate results page with detailed visualizations.