Performance & risk

Treynor Ratio

Excess return per unit of systematic risk measured by beta.

01 / Definition

What Treynor Ratio Means

The Treynor ratio divides return above the risk-free rate by portfolio beta. It is most relevant for diversified portfolios where beta is an appropriate remaining-risk measure.

02 / Calculation

Treynor Ratio Formula

Treynor ratio = (Rₚ − R𝒻) ÷ βₚ

03 / Worked Example

How to Read the Result

A 10% portfolio return, 4% risk-free rate, and 1.2 beta produce 5 percentage points of excess return per unit of beta.

04 / Boundaries

Limitations

It is unreliable near zero or negative beta.
It assumes adequate diversification.
Benchmark choices drive the result.

05 / Questions

Common Questions

Treynor or Sharpe?

Sharpe uses total volatility; Treynor uses systematic risk. Portfolio context determines which is suitable.