CAL, CML, and SML are concepts in finance that are used to understand the relationship between risk and return. Here’s what each of these terms means and how they differ:

1. Capital Allocation Line (CAL): The Capital Allocation Line is a graph that shows the possible combinations of risk and return for a portfolio that includes both a risk-free asset and a risky asset. The CAL is drawn by plotting the expected return of a portfolio against its standard deviation or volatility. The CAL is used by investors to find the optimal portfolio that maximizes return for a given level of risk.
2. Capital Market Line (CML): The Capital Market Line is similar to the CAL, but it only includes risky assets and no risk-free asset. The CML is a graph that shows the relationship between the expected return of a portfolio and its beta or systematic risk. The CML is used by investors to find the optimal portfolio that maximizes return for a given level of systematic risk.
3. Security Market Line (SML): The Security Market Line is a graph that shows the relationship between the expected return of a security and its beta or systematic risk. The SML is used to determine whether a security is overvalued or undervalued relative to its risk. The SML is also used to calculate the cost of equity capital for a company, which is an important input in determining the firm’s value.

The CAL is typically used when constructing a portfolio that includes both a risk-free asset and a risky asset. The CML is used when constructing a portfolio that only includes risky assets. The SML is used to evaluate individual securities and to calculate the cost of equity capital for a company. In general, the SML is most commonly used in the finance industry to analyse stocks, while the CAL and CML are used more broadly in portfolio management and asset allocation.