Groundlearn / Glossary / Capital market line
Capital market line (CML)
Also called CML. A CFA term, defined in plain English with the distinction examiners test.
What it means
The capital allocation line that runs from the risk-free asset to the market portfolio, the steepest available. Every efficient combination of the risk-free asset and risky assets lies on it.
The exam angle
The CML prices total risk and holds only for efficient portfolios. The security market line prices beta and holds for every asset.
Where it appears in the syllabus
- Quantitative MethodsCFA Level I · exam weight 11–14% · Returns and benchmarks, time value, distributions, portfolio maths, regression.
- Portfolio ConstructionCFA Level I · exam weight 8–12% · Risk and return, the CAPM, IPS construction, behavioural biases.
Related terms
- AlphaReturn in excess of what the asset’s risk exposures would predict.
- CorrelationCovariance divided by the product of the two standard deviations, giving a unit-free number between −1 and +1.
- CovarianceA measure of how two variables move together.
- Efficient frontierThe set of portfolios offering the highest expected return for each level of risk.
- Minimum-variance portfolioThe combination of risky assets with the lowest possible variance.
- Standard deviationThe square root of variance, in the same units as the data.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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