Portfolio Risk & Return

Treynor Ratio

Return above the risk-free rate per unit of market risk. Like the Sharpe ratio it starts from the return above what a Treasury bill paid, but it divides by beta — how strongly the portfolio moves with the market — instead of by total volatility. That makes it a measure of how well the portfolio is paid for the market exposure it carries, setting aside the ups and downs specific to individual holdings. Higher is better. It is most meaningful for a portfolio that is already well diversified, where market moves are most of the risk; when beta is near zero, as in a portfolio mostly in bonds or cash, the ratio becomes unstable or cannot be computed at all.

Educational information, not investment advice. See it applied across the screener →