A risk manager is evaluating how the return of a particular stock responds to the return of the S&P 500 Index. To accomplish this, the manager employs an ordinary least squares (OLS) regression analysis. Which of the following statements accurately describes the OLS process?

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OLS minimizes the square of the sum of differences between the actual and estimated S&P 500 Index returns

9.4%

OLS minimizes the square of the sum of differences between the actual and estimated stock returns

10.9%

OLS minimizes the sum of differences between the actual and estimated squared S&P 500 Index returns

6.3%

OLS minimizes the sum of squared differences between the actual and estimated stock returns

73.4%

Financial Risk Manager Part 1