... sensitivity coefficient to macro conditions, βi 8.2 THE SINGLE INDEX MODEL •- The Regression Equation of the Single -Index Model The market index : M Excess return: RM = rM – rf Standard deviation: ... Market index risk Cov(ri, rj) = - Correlation = Product of correlations with the market index Corr(ri, rj) = = = Corr(ri, rM) x Corr(rj, rM) The Set of Estimates Needed for the Single -Index ... the market index Statistical analysis Estimate: beta and σ2(ei) 8.4 Portfolio Construction and the Single -Index Model Alpha and Security Analysis Use the estimates for the market -index risk...