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 for each 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 (dimensionless)

Explanation: The difference between portfolio return and risk-free rate is divided by the portfolio's beta to measure risk-adjusted performance.

3. Importance of the Treynor Ratio

Details: A higher Treynor ratio indicates better risk-adjusted performance. It's particularly useful for comparing diversified portfolios.

4. Using the Calculator

Tips: Enter the portfolio return (%), risk-free rate (%), and beta coefficient. Beta must be greater than 0.

5. Frequently Asked Questions (FAQ)

Q1: What's a good Treynor ratio?
A: Higher is better. Compare to market's ratio (typically 0.3-0.5) or other portfolios in the same category.

Q2: How is this different from Sharpe ratio?
A: Treynor uses beta (systematic risk) while Sharpe uses standard deviation (total risk).

Q3: What risk-free rate should I use?
A: Typically use 3-month T-bill rate or 10-year government bond yield matching your investment horizon.

Q4: Can Treynor ratio be negative?
A: Yes, if portfolio return is less than risk-free rate, indicating poor performance.

Q5: What if beta is zero?
A: The ratio becomes undefined (division by zero). This suggests a risk-free portfolio.