What is a 'Characteristic Line'
A characteristic line is a line formed using regression analysis that summarizes a particular security or portfolio's systematic risk and rate of return. The rate of return is dependent on the standard deviation of the asset's returns and the slope of the characteristic line, which is represented by the asset's beta.
BREAKING DOWN 'Characteristic Line'
A characteristic line of a stock is the same as the security market line, and is very useful when employing the capital asset pricing model, or when using modern portfolio formation techniques. The slope of the line, which is a measure of systematic risk, determines the riskreturn tradeoff. According to this metric, the more risk you take on  as measured by variability in returns  the higher the returns you can expect to earn.
There is considerable controversy regarding the use of beta as a measure of risk and return.

Systematic Risk
The risk inherent to the entire market or entire market segment. ... 
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Security Market Line  SML
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Return
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Standard Deviation
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How is the Capital Asset Pricing Model (CAPM) represented in the Security Market ...
Learn about the capital asset pricing model and the security market line and how the model is used in the calculation and ... Read Answer >> 
How do markets account for systematic risk?
Find out how market participants deal with systematic risk, or the kind of market risk that cannot be diversified away through ... Read Answer >> 
What are some common measures of risk used in risk management?
Learn about common risk measures used in risk management and how to use common risk management techniques to assess the risk ... Read Answer >> 
How do you calculate beta in Excel?
Learn how to calculate the beta of an equity investment using Microsoft Excel, including how to use a regression or the slope ... Read Answer >> 
How does market risk affect the cost of capital?
Find out how market risk directly affects the total cost of capital, including how to use the capital asset pricing model ... Read Answer >> 
How is risk aversion measured in Modern Portfolio Theory (MPT)?
Find out how risk aversion is measured in modern portfolio theory (MPT), how it is reflected in the market and how MPT treats ... Read Answer >>