CF LAB

Capital market line

CML

For learning purposes only. Do not use this calculator or its data to make investment decisions. Results are simplified teaching examples, and company figures may be incomplete or out of date.

What is this?

The Capital Market Line shows what happens when you split your money between a safe investment (like T-bills) and the market portfolio, a diversified basket of stocks such as an index fund. Putting more in the market raises your expected return, but also your risk. Past 100%, you are borrowing money to invest even more.

Start with the made-up example, or pick a real PSX company: the market numbers become the KSE-100 PR’s real past figures, and the company’s share is plotted so you can compare it with the line.

How to read the chart

  • Rf (left end): all your money is safe. No risk.
  • M (square): all your money is in the market.
  • P (orange diamond): your mix. Move it with “Money in the market”.
  • The line’s slope is the extra return you earn for each 1% of risk. It is the same everywhere on the line.
  • With a company picked, the teal dot is its share on its own; the hollow dot on the line is a T-bill + market mix with the same risk.
Chart ↓
Your expected return
14.00%
What your mix of safe asset and market portfolio should earn per year, on average.
Your risk σp
12.00%
Reward per risk
0.250
Kept safe
40%
Lending
What this means

Try this
How it’s calculated
About the data: sources and method

  • Prices: daily closing prices from the Pakistan Stock Exchange data portal, downloaded automatically every Saturday. The market is the KSE-100 Price Return index (KSE100PR), which, like share prices, leaves out dividends.
  • Returns: each weekly or monthly return uses the last closing price in that week or month: price ÷ previous price − 1. The current, unfinished week or month is not used.
  • No price adjustments: prices are as PSX reports them, so bonus shares, splits and dividends make a share price drop. A day when a share fell more than 11% while the market moved less than 5% is treated as one of these events, and the week or month containing it is left out (listed above for each company).
  • Yearly figures: average return × 52 (weekly) or × 12 (monthly); volatility × √52 or × √12. These are simple averages, not compound growth. Variances and covariances divide by n − 1.
  • Not data: the risk-free rate is your assumption, held constant over the period.
  • Rounding: figures loaded into the boxes are rounded to the decimals shown, and every calculation uses exactly those numbers.