The capital allocation line (CAL) is a line chart which graphically shows the risk-and-reward profile of risky assets and is usually drawn to determine the optimal portfolio. There are multiple steps to constructing the CAL:

  1. Calculate the portfolio's expected return and variance
  2. Graph the efficient frontier using standard deviation as the x-axis and expected return as the y-axis
  3. Graph the capital allocation line (CAL) with the Sharpe ratio as its slope 
  4. Identify the optimal risky asset portfolio which is the point where the CAL is tangent to the efficient frontier
Reviews Add a review
No reviews yet

More From Corporate Finance Institute®

Browse our top rated business templates. See All
REIT Financial Model Template
This REIT financial model template acts as a guideline for modeling a real estate investment trust (REIT). This model will…
Energy Industry Comps Template Energy Industry Comps Template
This energy industry comps template provides a guideline and example of what a comparables universe would look like for a…
Financial Institution Dividend Discount Model
The financial institution dividend discount model uses future dividends to find the implied share price. This model is based on…
Loan Payment Calculator
The loan payment calculator allows users to determine the principal and interest payment each month until the full balance of…
DDM - Excel Dividend Discount Model Template
The dividend discount model template allows investors to value a company base on future dividend payments. This is based on…
Non-directional trading strategy template Non-directional Trading Strategies Template
The non-directional trading strategies template allow users to determine the profit when buying options. This template focuses on non-directional strategies…
See All