The Most FAMOUS Formula in Finance | Security Market Line Explained

This is lesson 11 in my series "The DNA of Wall Street".
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[@asgardro4434]

Great video. So, in the CAPM world, given the risk free rate, risk premium and the beta, this is how the stock should give return according to the market. For example: take an average risk premium of the last 10 years let's say 8%. The risk free rate now is let's say 2%. So the risk premium is 6%. Now if I calculate the returns over a period of the market, let's say the SP500, and the stock I'm referring, I run the regression and I get a beta of 1.5. So the beta in this case for the stock says that on average, when the market gave +10% returns, the stock did 10% * 1, 5. But from the other side, when the market went down 10%, the stock did -10% * 1.5. This negative side captures the only risk that I'll feel as a diversified investor. So in this case, with my calculation I can expect a return of 2% + 1.5 (6%). So in the world of the model, If I want high returns, I just have to accept high risk (high beta). Right? Did I miss something?

[@FinAndEcon]

I think you are correct.