Return-generating Process and factor models Implicit in the construction of a factor model is the assumption that the returns on two securities will be correlated only through common reactions to one or more of the specified in the model. Any aspect of a security's return unexplained by the factor model is uncorrelated with the unique elements of returns on other securitiesReturn-generating Process and Factor Models – Implicit in the construction of a factor model is the assumption that the returns on two securities will be correlated only through common reactions to one or more of the specified in the model. Any aspect of a security’s return unexplained by the factor model is uncorrelated with the unique elements of returns on other securities