DEFINITION of 'Capital Allocation Line  CAL'
A line created in a graph of all possible combinations of risky and riskfree assets. Also known as the "rewardtovariability ratio".
INVESTOPEDIA EXPLAINS 'Capital Allocation Line  CAL'
The graph displays to investors the return they can make by taking on a certain level of risk.
RELATED TERMS

Capital Accumulation
This refers to profits that a company uses to increase its capital ... 
Expected Return
The amount one would anticipate receiving on an investment that ... 
Efficient Frontier
A set of optimal portfolios that offers the highest expected ... 
Portfolio
A grouping of financial assets such as stocks, bonds and cash ... 
Modern Portfolio Theory  MPT
A theory on how riskaverse investors can construct portfolios ... 
Risk
The chance that an investment's actual return will be different ...
RELATED FAQS

Who is the counterparty of a derivative?
The counterparty to a derivative is the party who takes the other side of the trade. Every derivative trade needs to have ... Read Full Answer >> 
What is affected by the interest rate risk?
Interest rate risk is the risk that arises when the absolute level of interest rates fluctuate. Interest rate risk directly ... Read Full Answer >> 
How can derivatives be used for risk management?
Derivatives could be used in risk management by hedging a position to protect against the risk of an adverse move in an asset. ... Read Full Answer >> 
How does duration impact bond funds?
Duration measures the sensitivity of bond funds to changes in interest rates. A higher duration means that the fund has a ... Read Full Answer >> 
What percent of capital should banks hold relative to its risk weighted assets?
As of 2015, banks are required to hold 4.5% of common equity of riskweighted assets under the provisions of the Basel III ... Read Full Answer >> 
How are risk weighted assets used to calculate the solvency ratio in regulatory capital ...
Riskweighted assets are the denominator in the calculation to determine the solvency ratio under the provisions of the Basel ... Read Full Answer >>
Related Articles

Investing Basics
Achieving Optimal Asset Allocation
Minimizing risk while maximizing return is any investor's prime goal. The right mix of securities is the key to achieving your optimal asset allocation. 
Investing Basics
Determining Risk And The Risk Pyramid
Many investors do not understand how to determine the risk level their individual portfolios should bear. 
Mutual Funds & ETFs
4 Steps To Building A Profitable Portfolio
This is a stepbystep approach to determining, achieving and maintaining optimal asset allocation. 
Trading Strategies
How To Outperform The Market
Active trading is an investing style that aims to beat the market. Find out how it works, and whether it will work for you. 
Mutual Funds & ETFs
5 Ways To Measure Mutual Fund Risk
These statistical measurements highlight how to mitigate risk and increase rewards. 
Options & Futures
Calculating The Equity Risk Premium
See the model in action with real data and evaluate whether its assumptions are valid. 
Fundamental Analysis
The EquityRisk Premium: More Risk For Higher Returns
Learn how the expected extra return on stocks is measured and why academic studies usually estimate a low premium. 
Trading Strategies
The Pros & Cons Of Being A Trader On The West Coast
There are certain benefits and drawbacks that go with being a trader on the West Coast of North America. 
Mutual Funds & ETFs
Top 4 ETFs That Will Help Diversify Your Portfolio
Seeking low cost diversification to high quality stocks and bonds? Consider these 4 ETFs. 
Bonds & Fixed Income
Muni Bonds, Taxable Bonds or CDs: Which is Best?
Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.