Mastering the Capital Asset Pricing Model (CAPM) Using Python
The analysis of historical financial market data can reveal interesting patterns and insights. This information can help to build a strong portfolio.
When creating a portfolio, two key variables play a significant role: diversification and the risk-return ratio.
The diversification of a portfolio can be easily implemented by adding different assets from various sectors. However, many retail investors overlook the evaluation of the risk-return ratio.
In this guide, we will explain how to apply and use the Capital Asset Pricing Model (CAPM). The CAPM is a theoretical model used to analyze the risk and return of securities. The model’s goal is to determine expected returns based on the risk involved.
We will discuss the following points:
- Introduction to the Capital Asset Pricing Model
- Difference between systematic and unsystematic risk
- CAPM Calculation with a simple example
- Advantages and disadvantages of the CAPM
- Example with Python
- Technical requirements
- Download stock market data with OpenBB
- Exploratory analysis
- Application of the CAPM
- Conclusion
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