CML vs. SML: Two Views of Risk

Same stocks plotted by total risk (left) and systematic risk (right) — click a stock to adjust its market correlation

rf = 3% E[RM] = 10% σM = 15%
Click any stock to explore
Capital Market Line
Previous view of return vs. risk
Security Market Line
CAPM's view of return vs. risk
Compare eBay (σ = 30%) and UPS (σ = 35%): eBay has less total risk but more systematic risk (β = 1.45 vs 0.79), and thus a higher expected return.