CML stands for Capital Market Line, and SML stands for Security Market Line. The CML is a line that is used to show the rates of return, which depends on risk-free rates of return and levels of risk for a specific portfolio. SML, which is also called a Characteristic Line, is a graphical representation of the market’s risk and return at a given time. One of the differences between CML and SML, is how the risk factors are measured. While standard deviation is the measure of risk for CML, Beta coefficient determines the risk factors of the SML. The CML measures the risk through standard deviation, or through a total risk factor. On the other hand, the SML measures the risk through beta, which helps to find the security’s risk contribution for the portfolio. While the Capital Market Line graphs define efficient portfolios, the Security Market Line graphs define both efficient and non-efficient portfolios.

### Articles in this section

- Course structure labelling change - CFA 2023 syllabus
- Joining a Zoom training session
- Can you please explain why key rate duration may be negative?
- How do you calculate Fixed Capital Investment using gross assets instead of net book value?
- Do we need to add back preference dividends when calculating FCFF?
- How we calculate fixed capital investment when there is an asset disposal?
- How do we know when to use the highest Sharpe ratio portfolio?
- Can you explain the difference between US GAAP and IFRS in the calculation of the interest cost of a defined benefit pension plan?
- Why does higher economic growth lead to a higher interest rate?
- What is the p value and how do we calculate it?

## Comments

0 comments

Please sign in to leave a comment.