Treynor Ratio

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What is the 'Treynor Ratio'

A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless investment per each unit of market risk.

The Treynor ratio is calculated as:

(Average Return of the Portfolio - Average Return of the Risk-Free Rate) / Beta of the Portfolio

BREAKING DOWN 'Treynor Ratio'

In other words, the Treynor ratio is a risk-adjusted measure of return based on systematic risk. It is similar to the Sharpe ratio, with the difference being that the Treynor ratio uses beta as the measurement of volatility.

Also known as the "reward-to-volatility ratio".

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