Question

What are the differences between the CML and the SML?

Answer 1

The differences between CML and SML are:

i) CML refers to capital market line and SML refers to security market line.
ii) In SML graph we take beta in horizontal axis as a measure of risk, however in CML graph we take standard deviation as a measure of risk in horizontal or X-axis.
iii) CML is valid for efficient but SML is valid for both efficient and non-efficient portfolios.
iv) CML is formed on the basis of capital market theory, and the basis of SML is CAPM (or capital asset pricing model).
v) While measuring the risk factors, CML is considered as superior as compared to SML.