Security market line
Encyclopedia
Security market line is the graphical representation of the Capital asset pricing model
. It displays the expected rate of return of an individual security as a function of systematic, non-diversifiable risk
(its beta).
Capital asset pricing model
In finance, the capital asset pricing model is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk...
. It displays the expected rate of return of an individual security as a function of systematic, non-diversifiable risk
Systematic risk
In finance, systematic risk, sometimes called market risk, aggregate risk, or undiversifiable risk, is the risk associated with aggregate market returns....
(its beta).
See also
- Capital allocation lineCapital allocation lineCapital allocation line is a graph created by investors to measure the risk of risky and risk-free assets. The graph displays to the investors on the return they can make by taking on a certain level of risk...
- Capital market line
- Market portfolioMarket portfolioMarket portfolio is a portfolio consisting of a weighted sum of every asset in the market, with weights in the proportions that they exist in the market, with the necessary assumption that these assets are infinitely divisible....
- Modern portfolio theoryModern portfolio theoryModern portfolio theory is a theory of investment which attempts to maximize portfolio expected return for a given amount of portfolio risk, or equivalently minimize risk for a given level of expected return, by carefully choosing the proportions of various assets...
- Security characteristic lineSecurity characteristic lineSecurity characteristic line is a regression line, plotting performance of a particular security or portfolio against that of the market portfolio at every point in time. The SCL is plotted on a graph where the Y-axis is the excess return on a security over the risk-free return and the X-axis is...