when a security is plotted on the sml chart if it appears above the sml it is considered undervalued because the position on the chart indicates that the security offers a greater return against its inherent risk 
conversely if the security plots below the sml it is considered overvalued in price because the expected return does not overcome the inherent risk the sml is frequently used in comparing two similar securities that offer approximately the same return in order to determine which of them involves the least amount of inherent market risk relative to the expected return the sml can also be used to compare securities of equal risk to see which one offers the highest expected return against that level of risk 