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Merry Xmas Lock,

The SML is just the CAPM in graphical form. E[Ri]= rf+Betai*(E[Rm]-rf) follows the linear function y=a+b*x where a is the intercept,b the slope and x the variable on the x-axis. The SML plots beta on the x axis and average asset returns on the y axis. The beta itself can be taken from a timeseries regression of excess asset return on excess market returns. Repeat this process for all assets and you end up with a collection of betas,one for each asset. Plot the average return of each asset against the estimated beta for that asset and you end up with the SML.

Thanks for the explanation Alladin. Merry Xmas to you too!

Beta is the x-variable