Difference between Capital Market Line(CML) and Security Market Line(SML) | Finance

March 24, 2017 | Home » Difference between Capital Market Line(CML) and Security Market Line(SML) | Finance

Difference between Capital Market Line(CML) and Security Market Line(SML)
Investment Decisions | Finance
BBA | BBA-BI | BIM | BBS
Management Notes

S.No. Capital Market Line(CML) Security Market Line(SML)
1.  Capital Market Line(CML) is  the graphical representation of CAPM which shows the relationship between the expected return on efficient portfolio and their total risk. Security Market Line(SML) is  the graphical representation of CAPM which shows the relationship between the required return on individual security as a function of systematic, non-diversifiable risk .
2. Capital Market Line(CML) measures the risk through standard deviation, or through a total risk factor. Security Market Line(SML) measures the risk through beta, which helps to find the security’s risk contribution for the portfolio.
3.  The graphs of Capital Market Line defines efficient portfolios. The graphs of Security Market Line defines both efficient and non-efficient portfolios.
4. The Y axis of the CML represents the expected return and X axis represents the standard deviation or level of risk. The Y axis of the SML represents the level of required return on individual assets, and the X axis shows the level of risk represented by beta.

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