Treynor Ratio
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May 1, 2024
3 minute read
The Treynor ratio is a performance evaluation metric used in the financial industry to assess the risk-adjusted returns of investment portfolios. Developed by Jack Treynor in 1965, this ratio helps investors make informed decisions by comparing the expected return of an investment with its associated risk.
Understanding the Treynor Ratio
The Treynor ratio is calculated by dividing the excess return of a portfolio by its beta, which measures the portfolio's volatility relative to the overall market. The excess return is the difference between the portfolio's expected return and the current risk-free rate.
Treynor Ratio = (Expected Return - Risk-Free Rate) / Beta
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