# Capital Allocation Line (CAL).

A Capital Allocation Line is a line that shows the relationship between the expected return and standard deviation of a portfolio. The line is created by plotting the expected return and standard deviation of two investment options on a graph. The line starts at the point of the highest expected return and lowest standard deviation and extends to the point of the lowest expected return and highest standard deviation. The line is used to show how the risk and return of a portfolio changes as the mix of investments changes.

What is the difference between asset allocation and capital allocation? Asset allocation is the process of allocating funds among different asset classes, such as stocks, bonds, and cash. The goal of asset allocation is to create a portfolio that has a higher return than the market average, while also minimizing risk.

Capital allocation is the process of allocating funds among different investments, such as stocks, bonds, and real estate. The goal of capital allocation is to create a portfolio that has a higher return than the market average, while also minimizing risk. How do you plot a Capital Market Line? The Capital Market Line (CML) is a graphical representation of the relationship between expected return and risk. The CML is derived from the Capital Asset Pricing Model (CAPM), which is a model used to determine the optimal portfolio mix for a given level of risk. The CML shows the relationship between the risk-free rate of return and the expected return of a portfolio that is invested in the market portfolio. The market portfolio is a hypothetical portfolio that contains all of the investable assets in the market. The CML is used to determine the optimal mix of assets for a portfolio.

The CML is represented by a line on a graph. The x-axis represents risk and the y-axis represents expected return. The CML is derived from the CAPM, which is a model used to determine the optimal portfolio mix for a given level of risk. The CML shows the relationship between the risk-free rate of return and the expected return of a portfolio that is invested in the market portfolio. The market portfolio is a hypothetical portfolio that contains all of the investable assets in the market. The CML is used to determine the optimal mix of assets for a portfolio.

To plot the CML, first, the risk-free rate of return is plotted on the y-axis. This is the rate of return that an investor would earn if they invested in a risk-free asset, such as a government bond. Next, the expected return of the market portfolio is plotted on the x-axis. The market portfolio is a hypothetical portfolio that contains all of the investable assets in the market. Finally, a line is drawn connecting the two points. The CML shows the relationship between the risk-free rate of return and the expected return of a portfolio that is invested in the market portfolio. The market portfolio is a hypothetical portfolio that contains all of the investable assets in the market. The CML is used to determine the optimal mix of assets

### Who invented capital allocation line?

The Capital Allocation Line (CAL) was invented by Harry Markowitz in 1952. It is a tool used by investors to graphically depict the relationship between risk and return. The CAL is created by plotting the expected return of a portfolio on the x-axis and the standard deviation of that portfolio's returns on the y-axis. How does asset allocation work? Asset allocation is an investment strategy that involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The allocation is determined by the investor's goals, risk tolerance, and time horizon.

The goal of asset allocation is to diversify the portfolio so that it is less susceptible to market volatility. By investing in different asset categories, the investor can offset the losses in one asset class with gains in another.

For example, if the stock market is declining, the value of a bond portfolio may increase. This can help to reduce the overall losses in the portfolio.

Asset allocation does not guarantee against losses, but it can help to reduce the risk of losses in a portfolio.

### What is difference between CML and Cal?

The main difference between CML and Cal is that CML is an abbreviation for "committed line of credit" while Cal is an abbreviation for "calendar." A committed line of credit is a type of loan that gives the borrower a set amount of money that they can borrow against, up to a certain limit. Calendar is simply a way of organizing time, and has no direct bearing on the topic of investing.