Security characteristic line

${\displaystyle \mathrm {SCL} :R_{i,t}-R_{f}=\alpha _{i}+\beta _{i}\,(R_{M,t}-R_{f})+\epsilon _{i,t}}$

where:

α_i is called the asset's alpha (abnormal return)

β_i(R_M,t – R_f) is a nondiversifiable or systematic risk

ε_i,t is the non-systematic or diversifiable, non-market or idiosyncratic risk

R_M,t is the return to market portfolio

R_f is a risk-free rate

• Security market line
• Capital allocation line
• Capital market line
• Modern portfolio theory