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# Finance Dictionary - S Terms

# Scatter Diagram Of A Regression

For example, to estimate beta coefficient, we regress rate of return of company i in period t (Rit) on market rate of return in period t (Rmt), then the regression model can be defined as: Rit ¼ ai þ biRmt þ eit (1) The estimated slope is the beta coefficient (systematic risk). In the regression analysis of equation (1) involving one independent variable (Rmt) and one dependent variable (Rit), the individual value of Rit and Rmt are plotted on a two-dimensional graph. In this two-dimensional graph, we can plot the different points in accordance with the pairwise observations of Rit and Rmt to obtain the scatter diagram as presented in the figure below.