The calculation of CAPM model

Title: The coefficient of a company's stock is 2, the risk-free rate is 5%, the average return rate of all stocks on the market is 10%. The Capital asset pricing model is used to calculate the company's stock cost. The formula of CAPM pricing model r=rf+β (RM-RF)

Answer: r=rf+β (RM-RF) =5%+2* (10%-5%) =15% Note: Rm represents the average rate of return for all stocks on the market.
R represents the expected rate of return of a single stock (i.e. the capital cost of the stock)
β represents a multiple of the risk movements of a single stock relative to the entire stock market (generally assuming the risk coefficient of change for the entire stock market is 1)

Stock options for excess income

Σs for stock standard deviation, beta for stock and market mix correlation coefficient, σm for market standard deviation, RF for risk-free interest rate, RS for stock yield, RM for market portfolio yield

CAPM Models (Capital Asset pricing model) I believe we should all be familiar with. The main idea of this paper is to simplify the boundary condition of the mark by using the exponential model, and deduce that the system risk can be expressed by the correlation coefficient and market risk of stock and market: σs=β⋅σmσs=β⋅σm, and the relationship between the stock yield and the market combination yield under the correct price is calculated as follows:

E[rs]=rf+β (E[RM]−RF)

So we know that when the price of a stock is priced correctly, its risk premium and market portfolio risk premium is a complete linear relationship, so that the stock yield and market portfolio yield of the linear regression, the resulting should be a slope of ββ, intercept for the rfrf of the fitting straight line.
In reality, the yield of each stock and the return of market mix when the intercept is not strictly equal to RFRF, at this time we define

α= (E[RS]−RF) −β (E[RM]−RF)

Alpha is called excess income, which means that the stock has additional benefits in addition to the gains it receives from the system risk. According to the CAPM model, when the correct pricing, the Shan value of the stock should be zero, all Shan value is not zero of the stock we can think that the wrong price. Stocks that are wrongly priced can be grouped into two categories

Α<0, the price of the stock is undervalued at this time.
Α>0, the price of the stock is overvalued at this time.

Assuming that the CAPM is set up, these wrong-priced stocks will eventually return to the right pricing, so we should buy Shan lower stocks When we choose stocks, which is the basis of our strategy structure.
Strategy and back-test

The strategy we build is the following:

∙∙ set up a stock pool, and select an index as a market mix (in general, the stock pool should be the constituent stock of the market combination); ∙∙
Selected parameters: Warehouse Cycle TC, the number of days used to calculate alpha N, the amount of shares in positions num;∙∙ every TC trading day: −−
Calculates linear regression using past N-day yield data to calculate the α;−− of all stocks in the stock pool corresponding to the market mix
Select the smallest num branch stock, the warehouse to hold these shares, holding the proportion of alpha smaller weight greater.