Question

How do I find how much of a return on a stock is explained by the return on the market if I don't have the inputs to use for the CAPM equation? All I have is Beta, Alpha, Correlation, and R squared.

Answer 1

if the beta of the stock is known then it is better to compare it with the market because beta will be reflecting it with the sensitivity and the correlation between the stock in the market should also be used as it will provide the overall relationship of Return between the stock in the market.

one can even use the Alpha rate of return to add to the overall market rate of return because Alpha will always generating an excess rate of return than the market rate of return.

Hence one can use any of the technique in order to calculate the the rate of return,the investor is expecting out of the market. he can multiply it in respect to the beta and then he can add it with the Alpha and he can adjust the correlation and R squared.