Treynor Ratio โ Smart Financial Analysis
Calculate risk-adjusted return per unit of systematic risk (beta). Treynor = (Portfolio Return - Risk-Free Rate) / Beta. Best for well-diversified portfolios.
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Treynor = (Portfolio Return - Risk-Free Rate) / Beta. Sharpe divides by standard deviation (total risk). Depends on market conditions. Beta measures portfolio sensitivity to market movements.
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Why: Treynor = (Portfolio Return - Risk-Free Rate) / Beta. It measures excess return per unit of systematic (market) risk. Named after Jack Treynor, one of the developers of CAPM. Hi...
How: Enter Portfolio Return (%), Risk-Free Rate (%), Portfolio Beta to get instant results. Try the preset examples to see how different scenarios affect the outcome, then adjust to match your situation.
Run the calculator when you are ready.
๐ Quick Examples โ Click to Load
๐ Portfolio Return, Risk-Free Rate, Excess Return
Components of the Treynor ratio.
๐ฉ Risk-Free vs Excess Return
Return composition breakdown.
๐ Treynor Ratios by Fund Type
Compare your portfolio to typical fund types.
๐ Return vs Beta at Different Risk Levels
Return vs beta frontier.
For educational purposes only โ not financial advice. Consult a qualified advisor before making decisions.
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The Treynor Ratio is one of three foundational risk-adjusted performance metrics (alongside Sharpe and Jensen's Alpha), measuring excess return per unit of systematic risk (beta). Developed by Jack Treynor, a co-developer of the Capital Asset Pricing Model, it is the preferred metric for evaluating well-diversified portfolios. Unlike Sharpe, which penalizes all volatility, Treynor focuses solely on market-related risk.
Sources: CFA Institute, Jack Treynor (1965), Morningstar, Journal of Finance.
Key Takeaways
- โข Treynor Ratio = (Portfolio Return - Risk-Free Rate) / Beta
- โข Uses beta (systematic risk) only; Sharpe uses total risk (standard deviation)
- โข Higher Treynor = better excess return per unit of market risk
- โข Best for well-diversified portfolios where unsystematic risk is eliminated
Did You Know?
How Does the Treynor Ratio Work?
The Formula
Treynor = (Portfolio Return - Risk-Free Rate) / Beta. Excess return divided by systematic risk only. A Treynor of 7 means 7 units of excess return per unit of beta.
Beta
Beta measures portfolio sensitivity to market movements. Beta 1.0 = moves with market. Beta 1.5 = 50% more volatile. Treynor rewards excess return relative to this market risk.
Treynor vs Sharpe
Sharpe divides by standard deviation (total risk). Treynor divides by beta (systematic risk only). Treynor is better for well-diversified portfolios where unsystematic risk is eliminated.
Expert Tips
Treynor vs Sharpe vs Sortino
| Metric | Risk Measure | Best For |
|---|---|---|
| Treynor | Beta (systematic) | Well-diversified portfolios |
| Sharpe | Std dev (total) | Stand-alone investments |
| Sortino | Downside deviation | Asymmetric returns |
Frequently Asked Questions
What is the Treynor Ratio?
Treynor = (Portfolio Return - Risk-Free Rate) / Beta. It measures excess return per unit of systematic (market) risk. Named after Jack Treynor, one of the developers of CAPM. Higher is better.
How does Treynor differ from Sharpe?
Sharpe divides by standard deviation (total risk). Treynor divides by beta (systematic risk only). Treynor is better for well-diversified portfolios where unsystematic risk is eliminated.
What is a good Treynor Ratio?
Depends on market conditions. If the market returns 10% with beta 1.0 and risk-free is 3%, market Treynor = 7. Portfolios above 7 outperform on a risk-adjusted basis. Higher Treynor = better risk-adjusted returns.
What is beta in the Treynor Ratio?
Beta measures portfolio sensitivity to market movements. Beta 1.0 = moves with market. Beta 1.5 = 50% more volatile. Beta 0.5 = half as volatile. Treynor rewards excess return relative to this market risk.
When should I use the Treynor Ratio?
For comparing well-diversified portfolios or mutual funds. If a portfolio has significant unsystematic risk (concentrated stock picks), use Sharpe instead. Treynor assumes diversification has eliminated firm-specific risk.
Can Treynor Ratio be negative?
Yes, if portfolio return is below the risk-free rate. Negative Treynor means you took market risk for worse-than-riskless returns. Also be cautious with negative beta - it can produce misleading positive ratios.
Key Statistics
Official Data Sources
โ ๏ธ Disclaimer: This calculator is for educational purposes only. Past performance does not guarantee future results. The Treynor ratio assumes well-diversified portfolios. Not financial advice. Consult a licensed financial advisor for investment decisions.
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