1. What is the Treynor Ratio?

Definition: The Treynor ratio measures risk-adjusted performance of a portfolio by comparing excess return over the risk-free rate to the portfolio's beta.

Purpose: It helps investors evaluate how much excess return was generated per unit of market risk taken.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( TR \) — Treynor ratio (dimensionless)
• \( R_p \) — Portfolio return (%)
• \( R_f \) — Risk-free rate (%)
• \( \beta \) — Beta coefficient (measures systematic risk)

Explanation: Higher values indicate better risk-adjusted performance. A negative ratio suggests the portfolio performed worse than the risk-free rate.

3. Importance of the Treynor Ratio

Details: Unlike the Sharpe ratio which uses standard deviation, the Treynor ratio focuses specifically on market risk (beta), making it particularly useful for diversified portfolios.

4. Using the Calculator

Tips: Enter the portfolio return (%), risk-free rate (%), and beta coefficient. Beta must not be zero.

5. Frequently Asked Questions (FAQ)

Q1: What's a good Treynor ratio?
A: Higher is better. Compare to market's ratio (typically 1.0) or other portfolios in the same category.

Q2: What risk-free rate should I use?
A: Common choices are 3-month T-bill rates or 10-year government bond yields matching your investment horizon.

Q3: How is beta different from standard deviation?
A: Beta measures market risk only, while standard deviation measures total risk (both systematic and unsystematic).

Q4: When is Treynor ratio preferred over Sharpe ratio?
A: For well-diversified portfolios where unsystematic risk is negligible, Treynor ratio is more appropriate.

Q5: Can the ratio be negative?
A: Yes, if portfolio return is less than the risk-free rate, indicating poor performance.