“If markets are in equilibrium, risk and return combinations for individual securities will lie along the SML, but not along the CML. Risk and return combinations for individual securities will lie below the CML because their standard deviations include unsystematic risk that is diversified away in the market portfolio.” Source: Reading 60 Schweser pg 175 (middle of page)
Does this mean the expected return has decreased if the same security were to be plotted in the CML graph? For example, if the expected return of the security when plotted in the SML is 10% (given the same scale of expected returns for both CML and SML) - the same security will now lie below the CML - so, does this mean the expected return now is below 10%? I am confused because if the ‘unsystematic risk’ in CML is diversified away then essentially it’s the market portfolio - which is ALSO synonymously represented by the SML.