Question

The relationship between security returns and market returns is shown by____

Answer 1

The answer is characteristic line.

The relationship between security returns and market returns is shown by a line called characteristic line. This line is formed using regression analysis and gives the summary of a particular security. It also provides the rate of return and systematic risk associated with a portfolio.

Answer 2

The relationship between security returns and market returns is shown by security characteristic line.

SCL or security characteristic line is a regression line which shows the performance of a particular security or portfolio against that of the market portfolio at every point in time. It is plotted on a graph where the X-axis is the excess return of the market and the Y-axis is the excess return on a security over the risk-free return. The intercept of the SCL is the security's alpha and the slope is its beta.