What is the 'Security Market Line  SML'
The security market line (SML) is a line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky marketable securities.
Also refered to as the "characteristic line".
BREAKING DOWN 'Security Market Line  SML'
The SML essentially graphs the results from the capital asset pricing model (CAPM) formula. The xaxis represents the risk (beta), and the yaxis represents the expected return. The market risk premium is determined from the slope of the SML.
The security market line is a useful tool in determining whether an asset being considered for a portfolio offers a reasonable expected return for risk. Individual securities are plotted on the SML graph. If the security's risk versus expected return is plotted above the SML, it is undervalued because the investor can expect a greater return for the inherent risk. A security plotted below the SML is overvalued because the investor would be accepting less return for the amount of risk assumed.

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A line formed using regression analysis that summarizes a particular ... 
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How do I interpret a Security Market Line (SML) graph?
Find out how to interpret stocks and portfolios through a security market line, or SML, graph as part of the Capital Asset ... Read Answer >> 
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 is the formula for calculating the capital asset pricing model (CAPM)?
Learn about the capital asset pricing model, or CAPM, and how this formula is used to determine the expected rate of return ... Read Answer >> 
How can I calculate the expected return of my portfolio?
Understand the components of the equation used to calculate the expected return of an investor's portfolio. Learn why the ... Read Answer >> 
What is the difference between inherent risk and systematic risk?
Learn about inherent and systematic risk, two types of risk that affect investments, the differences between them and how ... Read Answer >>