The capital market line is used to find optimal portfolios, analyzing assets based on a risk-reward structure. This theoretical framework shows all portfolios that merge the risk-free rate of return and riskier assets. Investors choose an equilibrium spot on the CAL with the capital asset pricing model ( CAPM). The slope of such a line is the reward-to-variability ratio, a metric that computes the return generated by a portfolio for each unit of risk taken. The capital allocation line displays portfolios that perfectly merge risk and return. In this graph, it is possible to see the return investors could have when estimating a specific level of risk linked with their investment. The capital allocation line (CAL), or the capital market link (CML), is a line that combines any possible combination of assets, from risk-free to riskier ones, in a chart.
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