Security characteristic line (SCL) is a regression line,[1] plotting performance of a particular security or portfolio against that of the market portfolio at every point in time. The SCL is plotted on a graph where the Y-axis is the excess return on a security over the risk-free return and the X-axis is the excess return of the market in general. The slope of the SCL is the security's beta, and the intercept is its alpha.[2]
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Security Market Line
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Concept of SML (CAPM) by Kunal Doshi, CFA
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Intro to Finance: What's the difference Between SML and CML
Transcription
Formula
where:
- αi is called the asset's alpha (abnormal return)
- βi(RM,t – Rf) is a nondiversifiable or systematic risk
- εi,t is the non-systematic or diversifiable, non-market or idiosyncratic risk
- RM,t is the return to market portfolio
- Rf is a risk-free rate
See also
References
External links
- Security characteristic line calculator
- CAPM and the Characteristic Line
- Chapter 7 CAPM {link doesn't work}
- Chapter 13 {link doesn't work}