i saw posts reference CAL vs. CML, can someone please explain the difference between these two? Thanks.

The wikipedia is pretty good IMHO: http://en.wikipedia.org/wiki/Modern_portfolio_theory#Capital_allocation_line

naze_duck Wrote: ------------------------------------------------------- > The wikipedia is pretty good IMHO: > > http://en.wikipedia.org/wiki/Modern_portfolio_theo > ry#Capital_allocation_line Thanks. As a follow up Q, are below statement correct: 1. Sharpe ratio of market is the slope of CML 2. Sharpe ratio of portfolio is the slope of CAM 3. Treynor ratio of portfolio is the slope of SML

naze_duck Wrote: ------------------------------------------------------- > The wikipedia is pretty good IMHO: > > http://en.wikipedia.org/wiki/Modern_portfolio_theo > ry#Capital_allocation_line Thanks. As a follow up Q, are below statement correct? 1. Sharpe ratio of market is the slope of CML 2. Sharpe ratio of portfolio is the slope of CAL 3. Treynor ratio of portfolio is the slope of SML

I’d say: 1) Correct, because the line is based on the market portfolio 2) Correct, because the CAL is based on the actual portfolio you’re holding 3) Incorrect, because the SML is based on the market portfolio Is that what your study guides say, too? Cheers, Naze

Whenever you’re dealing with std deviation (eg Sharpe) we’re talking CML (or CAL) Whenever you’re dealing with beta (eg Treynor) we’re talking SML My rule of thumb