Treynor Ratio Calculator
Measure portfolio performance against systematic risk using the Treynor ratio formula
Calculate Treynor Ratio
Annual return of the portfolio as a percentage
Typically the 10-year Treasury bond yield (e.g., 1.5%)
Measure of systematic risk (e.g., 1.25 means 25% more volatile than market)
Treynor Ratio Results
Formula used: Treynor Ratio = (Portfolio Return - Risk-Free Rate) / Portfolio Beta
Calculation: (0.00% - 0.00%) / 0.00 = 0.00%
Interpretation: For every unit of systematic risk, you earn 0.00% excess return
Risk-Return Analysis
Example Calculation
Company Alpha Portfolio Example
Beginning portfolio value: $2,000,000
Ending portfolio value: $2,200,000
Portfolio return: ($2,200,000 - $2,000,000) / $2,000,000 = 10%
Risk-free rate: 1.5%
Portfolio beta: 1.25
Treynor Ratio Calculation
Treynor Ratio = (Portfolio Return - Risk-Free Rate) / Portfolio Beta
Treynor Ratio = (10% - 1.5%) / 1.25
Treynor Ratio = 8.5% / 1.25
Treynor Ratio = 6.8%
Key Performance Metrics
Treynor Ratio
Return per unit of systematic risk
Higher = Better performance
Portfolio Beta
Systematic risk measure
1.0 = Market risk level
Excess Return
Return above risk-free rate
Compensates for taking risk
Investment Tips
Higher Treynor ratios indicate better risk-adjusted returns
Compare portfolios with similar investment objectives
Use with other metrics like Sharpe ratio for complete analysis
Consider the portfolio's investment time horizon
Negative ratios indicate underperformance vs. risk-free rate
Understanding the Treynor Ratio
What is the Treynor Ratio?
The Treynor ratio measures how much excess return a portfolio generates per unit of systematic risk (beta). It helps investors evaluate whether the additional risk taken is adequately compensated by higher returns.
Why Use the Treynor Ratio?
- •Focuses on systematic (non-diversifiable) risk
- •Better for well-diversified portfolios
- •Useful for comparing similar investment strategies
- •Complements other performance measures
Formula Explanation
Treynor Ratio = (Rp - Rf) / βp
- Rp: Portfolio return (%)
- Rf: Risk-free rate (%)
- βp: Portfolio beta (systematic risk)
- Result: Excess return per unit of systematic risk
Note: The Treynor ratio is most meaningful when comparing well-diversified portfolios with similar investment objectives and time horizons.
Treynor vs. Sharpe Ratio
| Aspect | Treynor Ratio | Sharpe Ratio |
|---|---|---|
| Risk Measure | Systematic risk (Beta) | Total risk (Standard deviation) |
| Best Used For | Well-diversified portfolios | Any portfolio or investment |
| Focus | Market-related risk only | All sources of risk |