Can someone break down SML and CML? Thank you.

Can someone break down SML and CML? Thank you

How? There are lots of ways. One can be the CML has std. dev. on the x-axis while the SML has beta.

agree with Niblita and … I know, for sure, looking at the SML plots, which security is overprices and whice one is underpriced, because a efficient portfolio/security will always lie on the SML line. - Dinesh S

CML - maximum return you can get for a given volatility level, security market line - expected return based on the stock beta.

Briefly, some important differences between the SML and CML. 1) Measure of risk - SML uses systematic (non-diversifiable risk) - CML uses standard deviation (total risk) 2) Application - SML is a tool used to determine whether an individual security is properly priced - CML is used to determine the appropriate asset allocation between the risk-free asset and the market portfolio 3) Definition - SML is a graph of CAPM - CML is a graph of the efficient frontier 4) Slope - SML slope is market risk premium - CML slope equals the market portfolio Sharpe Ratio