Explore allocations between a risky asset and the risk-free rate along the capital allocation line.
Combining a risky portfolio with a risk-free asset traces the capital allocation line. This tool shows how expected return and volatility change as you shift weight between the two, how leverage extends the line, and how the Sharpe ratio — excess return per unit of risk — sets its slope.
Expected return minus the risk-free rate, divided by volatility. It is the slope of the capital allocation line and the same for every mix of the risky asset with cash.
Borrowing at the risk-free rate to hold more than 100% in the risky asset moves you further along the same line: higher expected return and proportionally higher volatility.