CML Vs SML

CML Vs SML

• Capital Market Line (CML) represents the maximum return of a portfolio against the Risk(Standard Deviation).(i.e at one risk we can’t get the return greater than the point on CML line). SML represents the expected return of individual asset against its risk(Beta).
• CML gives the risk/return relationship for efficient portfolios whereas SML , also part of the CAPM, gives the particular stocks are overpriced or underpriced.(i.e if We plot all assets and portfolio of assets plot on SML, above the SML considered as “Underpriced”, Plot below the SML considered as “Overpriced”.)
• The measure of risk used in CML is standard deviation whereas in SML it is the beta coefficient.