Single-index model

The single-index model (SIM) is a simple asset pricing model to measure both the risk and the return of a stock.wikipedia
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Asset pricing

Investment theoryAsset pricesAsset pricing model
The single-index model (SIM) is a simple asset pricing model to measure both the risk and the return of a stock.

Stock

equitiesequityshares
The single-index model (SIM) is a simple asset pricing model to measure both the risk and the return of a stock.

William F. Sharpe

William SharpeBill SharpeSharpe, William Forsyth
The model has been developed by William Sharpe in 1963 and is commonly used in the finance industry.

Finance

financialfinancesfiscal
The model has been developed by William Sharpe in 1963 and is commonly used in the finance industry.

All Ordinaries

All Ordinaries Index
Each stock's performance is in relation to the performance of a market index (such as the All Ordinaries).

Systematic risk

unsystematic risknon-diversifiable risksystematic market risk
To simplify analysis, the single-index model assumes that there is only 1 macroeconomic factor that causes the systematic risk affecting all stock returns and this factor can be represented by the rate of return on a market index, such as the S&P 500.

Stock market index

stock indexindexstock market indices
To simplify analysis, the single-index model assumes that there is only 1 macroeconomic factor that causes the systematic risk affecting all stock returns and this factor can be represented by the rate of return on a market index, such as the S&P 500.

S&P 500 Index

S&P 500S&P 500 ComponentS&P500
To simplify analysis, the single-index model assumes that there is only 1 macroeconomic factor that causes the systematic risk affecting all stock returns and this factor can be represented by the rate of return on a market index, such as the S&P 500.

Risk factor (finance)

risk factorsrisk factor
A more detailed model would have multiple risk factors.

Financial economics

financial economistfinancial economistsfinance
Whereas the above extend the CAPM, the single-index model is a more simple model.

Treynor–Black model

Treynor-BlackTreynor-Black model
(This is the so-called Diagonal Model of Stock Returns, or Single-index model due to William F. Sharpe).

Estimation of covariance matrices

Covariance estimationShrinkage estimationestimate of the covariance