What is the full form of CML in the Share Market?

The CML full form in the share market is Capital Market Line. The link between the risks and returns of various portfolios is shown graphically by the capital market line (CML). It links the risk-free rate of return to a portfolio comprising riskier assets. Through the combination of riskier assets in the portfolio with less risky assets, the CML will include the idea of diversification.

What can we learn from CML?

The trade-off between risk and reward that you encounter when building a portfolio of various assets is represented visually by the CML. It emphasizes the advantages of diversification and how it can increase profits without taking on undue risk. The CML’s slope measures the incremental return per unit of risk in the portfolio, also referred to as the Sharpe ratio.

Significance of Capital Market Line:

Portfolios that are situated along the capital market line maximize performance by optimizing the risk-to-return relationship. Therefore, the market portfolio’s Sharpe ratio is represented by the CML’s slope. When this ratio is at the increasing trend, investors will purchase assets and will sell them when the ratio is at the decreasing trend.