How CAPM relates to the risk and return. The standard deviation of an individual stock does not indicate how that stock will contribute to the risk and return of a diversified portfolio. Thus, another measure of risk is needed; a measure of a security's systematic risk. This measure is provided by the Capital Asset Pricing Model (CAPM). The Capital Asset Pricing Model (CAPM) … [Read more...] about How CAPM relates with the Risk and Return