Characteristic Line

Characteristic Line
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.

A 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. The slope of the line, which is a measure of systematic risk, determines the risk-return tradeoff. According to this metric, the more risk you take on - as measured by variability in returns - the higher the returns you can expect to earn.

There is considerable controversy regarding the use of beta as a measure of risk and return.


Investment dictionary. . 2012.

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  • characteristic line — būdingoji linija statusas T sritis fizika atitikmenys: angl. characteristic line vok. charakteristische Linie, f rus. характеристическая линия, f pranc. raie caractéristique, f …   Fizikos terminų žodynas

  • Characteristic line — The market model applied to a single security. The slope of the line is a security s beta. The New York Times Financial Glossary …   Financial and business terms

  • characteristic line — 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. Bloomberg Financial Dictionary …   Financial and business terms

  • security characteristic line — A plot on a graph of the excess return ( excess returns) on a security over the risk free rate as a function of the excess return ( excess returns) on the market. The slope of this line is the security s beta. Bloomberg Financial Dictionary …   Financial and business terms

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