Capital Market Line

The Capital Market Line (CML) is a concept in finance that shows the relationship between risk and expected return for portfolios that combine a risk-free asset and a market portfolio of risky assets. It illustrates the best possible return investors can expect for a given level of risk, represented graphically as a straight line. The further a portfolio lies along this line, the higher its expected return, given its risk. Essentially, the CML helps investors understand how to optimize their investments by balancing risk and reward effectively.