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Capital Asset Pricing Model - Standard Deviation
The Capital Market Line (CML) uses the Standard Deviation as a measure of risk, whereas the Security Market Line (CML) uses Beta as its measure of risk (CAPM - Beta). The CML is a representation of the relationship of risk and return for efficient portfolios. The CML is a broad perspective of the risk return relationship, while the SML has the versatility to be used with portfolios and individual securities. The CML may be used to compare actual results to expected results on a risk adjusted basis.
return = Risk-Free Return + [ (MktReturn - Risk-Free Return) / Market Std Deviation ] * Portfolio Std Deviation.
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