Security characteristic line

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title: "Security characteristic line" type: doc version: 1 created: 2026-02-28 author: "Wikipedia contributors" status: active scope: public tags: ["investment"] description: "Risk-calculating regression line" topic_path: "economics" source: "https://en.wikipedia.org/wiki/Security_characteristic_line" license: "CC BY-SA 4.0" wikipedia_page_id: 0 wikipedia_revision_id: 0

::summary Risk-calculating regression line ::

::figure[src="https://upload.wikimedia.org/wikipedia/commons/4/43/SCL-plot.PNG" caption="Security characteristic line

'''Positive abnormal return (α)''': Above-average returns that cannot be explained as compensation for added risk

'''Negative abnormal returns (α)''': Below-average returns that cannot be explained by below-market risk"] ::

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.

Formula

:\mathrm{SCL} : R_{i,t} - R_{f} = \alpha_i + \beta_i, ( R_{M,t} - R_{f} ) + \epsilon_{i,t}

where: :α**i is called the asset's alpha (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

References

References

1. [http://www.investopedia.com/terms/c/characteristicline.asp Characteristic Line]
2. [http://financial-dictionary.thefreedictionary.com/Security+characteristic+line Security Characteristic Line]

::callout[type=info title="Wikipedia Source"] This article was imported from Wikipedia and is available under the Creative Commons Attribution-ShareAlike 4.0 License. Content has been adapted to SurfDoc format. Original contributors can be found on the article history page. ::