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.

Beta
Beta is a measure of the volatility, or systematic risk, of a ... 
Systematic Risk
The risk inherent to the entire market or entire market segment. ... 
International Beta
Better known as "global beta", international beta is a measure ... 
Security Market Line  SML
A line that graphs the systematic, or market, risk versus return ... 
Return On Capital Gains
The return that one gets from an increase in the value of a capital ... 
Volatility
1. A statistical measure of the dispersion of returns for a given ...

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How is the Capital Asset Pricing Model (CAPM) represented in the Security Market ...
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