One-Factor models Two important features of one-factor model The tangency portfolio is easy to get k The returns on all securities respond to a single common factor greater simplifies the task of identifying the tangency portfolio. The common responsiveness of securities to the factor eliminates the need to estimate directly the covariances between the securities k The number of estimates: 3N+2One-Factor Models • Two important features of one-factor model – The tangency portfolio is easy to get. «The returns on all securities respond to a single common factor greater simplifies the task of identifying the tangency portfolio. «The common responsiveness of securities to the factor eliminates the need to estimate directly the covariances between the securities. «The number of estimates: 3N+2