DEFINITION of 'TreynorBlack 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.
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BREAKING DOWN 'TreynorBlack Model'
If using the TreynorBlack 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 TreynorBlack model. As a result of this tendency, the TreynorBlack model is said to favor lowreturn, lowrisk securities over those with higher return and higher risk.
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