Define characteristics Line and its Beta?

Agree with the answer given by: Mr. Vinod jetley and Mr. Malik Khalid Mahmood. 

 

 

The market model applied to a single security, a regression of security returns on the benchmark return. The slope of the regression line is a security's beta.

 

I agree with all the answers

A straight line formed on a graph which represents the relation over time between returns on a stock and a return on the market. The line is used to show a stock's vertical intercept (alpha) and the line's slope (beta) and to highlight the difference between unsystematic and systematic risks.

Vinod Jetley  &  Malik Khalid Mahmood explain very well.

Thanks Sara Naeem ... Your questions are good source of knowledge for me.

 

Vinod Jetley Assistant General Manager at State Bank of India

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A line formed using regression analysis that summarizes a particular security or portfolio's systematic risk and rate of return. The rate of return is dependent on the standard deviation of the asset's returns and the slope of the characteristic line, which is represented by the asset's beta.

Characterstic line gives you regressing historical returns on the stock versus historical returns on the market & Beta is the slope of its characterstic line. Beta measures the volatility of returns on a security relative to returns on the market which is the portfolio of all risky assets.

enough answers from my colleagues,

But i want to add about characteristic line of a stock is the same as the security market line, and is very useful when employing the capital asset pricing model, or when using modern portfolio formation techniques.

agreed with gentlemen

CL is the best fit linear relation between the stock return and market return. Beta is the slope of the CL. It is the sensitivity of the stock return to the market return. Say for example if Beta of a stock is2 and the market return changes by a percent then the stock return is expected to change by2% in the same direction.

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.