DEFINITION of '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 RiskFree Rate) / Beta of the Portfolio
INVESTOPEDIA EXPLAINS 'Treynor Ratio'
In other words, the Treynor ratio is a riskadjusted 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 "rewardtovolatility ratio".
RELATED TERMS

Sharpe Ratio
A ratio developed by Nobel laureate William F. Sharpe to measure ... 
Systematic Risk
The risk inherent to the entire market or entire market segment. ... 
Entropy
A mathematical measurement of the degree of uncertainty of a ... 
Volatility
1. A statistical measure of the dispersion of returns for a given ... 
Beta
A measure of the volatility, or systematic risk, of a security ... 
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RELATED FAQS

What is the difference between a Sharpe ratio and a Traynor ratio?
The Sharpe ratio and the Treynor ratio (both named for their creators, William Sharpe and Jack Treynor), are two ratios utilized ... Read Full Answer >>
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