The basic theory linking portfolio risk and return is the Capital Asset Pricing Model.

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The Capital Asset Pricing Model (CAPM) is a fundamental theory in finance that describes the relationship between systematic risk and expected return for assets, particularly stocks. It is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk.

The Basic Theory Linking Portfolio Risk and Return Is the Capital