CAPM Beta, Alpha, and Diagnostics

How SurgeFlow reads market beta, alpha, residual behavior, and model fit before using factor exposure in research.

Category: Factor Research

The CAPM baseline

CAPM gives a first-pass decomposition of stock return into market exposure and residual behavior. The research identity is R_i - R_f = alpha + beta_mkt x (R_m - R_f) + error. SurgeFlow uses it as a baseline before reading multi-factor exposures.

Diagnostics matter more than one coefficient

Beta without fit quality is incomplete. Residual autocorrelation, heteroskedasticity, outliers, and alpha significance all affect whether the coefficient is usable.

Agent use

The Strategy Briefer and Risk Analyst read beta as a tilt, not a guarantee. A high-beta stock can be preferred in risk-on conditions only if risk, liquidity, and fundamentals are also acceptable.