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3 The analyst then provides a decomposition of the return of a stock into the alpha, the beta, and
the epsilon. The epsilon measures: The return of the stock independently of the market return.
The idiosyncratic risk. The return of the stock correlated with the market return.

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  • 1. 3 The analyst then provides a decomposition of the return of a stock into the alpha, the beta, and the epsilon. The epsilon measures: The return of the stock independently of the market return. The idiosyncratic risk. The return of the stock correlated with the market return.