Question

How do you calculate alpha of a stock using regression?

Answer 1

The alpha of a portfolio is the excess return that portfolio generates over expected return

A regression analysis may be used to express a ‘dependent’ variable as a function of one or more ‘independent’ variables, generally in the form of regression multiple.

Regression Equation expresses the relationship between single dependent variable Y whose value is dependent upon the independent variable X

beta is calculated as:

? = covariance of the two variables / variance of the independent variable

alpha can be calculated as

? = mean of the dependent variable (ie y) - ? * mean of the independent variable (ie x)