https://github.com/carolinerocks/capm-tesla-stock-analysis
https://github.com/carolinerocks/capm-tesla-stock-analysis
capm python
Last synced: 3 months ago
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- Host: GitHub
- URL: https://github.com/carolinerocks/capm-tesla-stock-analysis
- Owner: Carolinerocks
- Created: 2025-03-06T04:56:52.000Z (3 months ago)
- Default Branch: main
- Last Pushed: 2025-03-06T05:01:59.000Z (3 months ago)
- Last Synced: 2025-03-06T05:32:39.272Z (3 months ago)
- Topics: capm, python
- Homepage:
- Size: 0 Bytes
- Stars: 0
- Watchers: 1
- Forks: 0
- Open Issues: 0
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Metadata Files:
- Readme: README.md
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README
# CAPM-Tesla-Stock-Analysis
## Project Overview
This project analyzes Tesla's stock performance using the **Capital Asset Pricing Model (CAPM)** to estimate its expected return based on market risk. By examining historical price data, we assess Tesla's risk-return profile and the effectiveness of CAPM in explaining its performance. The analysis also incorporates alternative models and metrics to provide a comprehensive evaluation of Tesla's stock.
## Introduction
The **Capital Asset Pricing Model (CAPM)** helps investors determine an asset's expected return based on its risk relative to the market. In this project, we apply CAPM to **Tesla Inc. (TSLA)** to:
- Estimate Tesla's risk profile (Beta, β).
- Calculate its expected return.
- Assess whether CAPM is a reliable tool for analyzing high-growth stocks like Tesla.
## Data Description
- **Source:** Yahoo Finance
- **Period:** January 1, 2020 – February 1, 2025
- **Assets:** Tesla Inc. (TSLA) and S&P 500 Index (^GSPC)
- **Key Metrics:**
- Daily closing prices
- Daily and monthly returns
- Descriptive statistics (mean, median, standard deviation)
## CAPM Model Overview
The CAPM formula is:
**E(Ri) = Rf + βi * (E(Rm) - Rf)**
Where:
- **E(Ri):** Expected return of Tesla
- **Rf:** Risk-free rate (assumed 2% annually)
- **βi:** Beta of Tesla (systematic risk measure)
- **E(Rm):** Expected market return
- **(E(Rm) - Rf):** Market risk premium
## Implementation in Python
Key steps:
1. **Data Collection:** Using `yfinance` to fetch historical prices.
2. **Return Calculation:** Compute daily and monthly returns.
3. **Beta Estimation:** Perform OLS regression to estimate Beta.
4. **Expected Return:** Calculate using CAPM formula.
5. **Validation:** Use alternative metrics (Sharpe Ratio, Jensen’s Alpha) for robustness.
## Results and Analysis
- **Beta (β):** 2.3364 — Tesla is more volatile than the market.
- **Expected Monthly Return:** 2.55%
- **Expected Yearly Return:** 30.56%
- **Insights:**
- Tesla's high beta suggests significant risk and return potential.
- CAPM's limitations highlight the need for alternative models for accuracy.
## Limitations
- **Assumption of Market Efficiency:** Real markets often deviate.
- **Beta Instability:** Beta varies over time.
- **Exclusion of Specific Risks:** CAPM ignores company-specific risks affecting Tesla.
## Alternative Models
1. **Sharpe Ratio:** Evaluates risk-adjusted return.
2. **Jensen’s Alpha:** Assesses if Tesla outperforms CAPM predictions.
3. **Fama-French Model:** Considers size and value factors.
4. **Monte Carlo Simulations:** Models multiple scenarios for Tesla's stock.
## Conclusion
CAPM provides a basic framework for analyzing Tesla’s stock but has limitations in capturing all risks. Integrating alternative models offers a more comprehensive view of Tesla’s risk-return profile, enhancing the reliability of investment decisions.