Treynor-Black Model


DEFINITION of 'Treynor-Black Model'

A type of asset allocation model that was developed by Jack Treynor and Fischer Black. The model tries to determine the optimal combination of passively and actively managed assets in an investment portfolio.When determining the optimal allocation of assets, the model focuses primarily on securities' systematic and unsystematic risk.

BREAKING DOWN 'Treynor-Black Model'

If using the Treynor-Black model, an individual can see that the model focuses less on the Beta of a security and more on its unsystematic risk. The more unsystematic risk a security has, the less weight it is given in the Treynor-Black model. As a result of this tendency, the Treynor-Black model is said to favor low-return, low-risk securities over those with higher return and higher risk.

  1. Strategic Asset Allocation

    A portfolio strategy that involves setting target allocations ...
  2. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. ...
  3. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  4. Modern Portfolio Theory - MPT

    A theory on how risk-averse investors can construct portfolios ...
  5. Beta

    Beta is a measure of the volatility, or systematic risk, of a ...
  6. Risk

    The chance that an investment's actual return will be different ...
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