Capital market line
Certified Financial Planner glossary · Certified Financial Planner
Definition
The locus of efficient portfolios formed by combining the risk-free asset with the market portfolio; plotted against total risk.
Capital market line in plain English
Graph risk-free lending and borrowing against the market portfolio and you get a straight efficient frontier in total-risk space. That line is the capital market line: the locus of efficient portfolios formed by combining the risk-free asset with the market portfolio, plotted against total risk (standard deviation). The security market line, by contrast, uses beta on the horizontal axis. If a stem's axis is sigma rather than beta, you are on the CML, not the SML.
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