Treynor Ratio

Loading the player...

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".

RELATED TERMS
  1. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, ...
  2. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  3. Entropy

    A mathematical measurement of the degree of uncertainty of a ...
  4. Beta

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

    The possibility for an investor to experience losses due to factors ...
  6. Risk-Free Return

    The theoretical rate of return attributed to an investment with ...
Related Articles
  1. Fundamental Analysis

    Treynor Ratio: Is the Risk Worth Your Return?

    The Treynor ratio measures returns in excess of what could have been earned on a riskless investment per unit of market risk.
  2. Mutual Funds & ETFs

    VCIT: Vanguard Intermediate-Term Corp Bd ETF

    Learn about the Vanguard Intermediate-Term Corporate Bond ETF, and explore detailed analysis of the fund's characteristics, risks and historical statistics.
  3. Mutual Funds & ETFs

    CSM: ProShares Large Cap Core Plus ETF

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    XLG: Guggenheim Russell Top 50 Mega Cap ETF

    Find out about the Guggenheim Russell Top 50 Index ETF, and read about some recommendations regarding the suitability of this investment.
  5. Mutual Funds & ETFs

    FGD: First Trust Dow Jones Global Sel Div ETF

    Find out about the First Trust Dow Jones Global Select Dividend Index Fund, and learn detailed information about characteristics and suitability of the fund.
  6. Mutual Funds & ETFs

    PRF: PowerShares FTSE RAFI US 1000 ETF

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  7. Mutual Funds & ETFs

    MTK: SPDR Morgan Stanley Technology ETF

    Find out about the SPDR Morgan Stanley exchange-traded fund, and learn detailed information about its characteristics, suitability and recommendations.
  8. Mutual Funds & ETFs

    AOR: iShares Core Growth Allocation ETF

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    DSI: iShares MSCI KLD 400 Social ETF

    Find out about the iShares MSCI KLD 400 Social exchange-traded fund, and learn detailed information about its characteristics, suitability and recommendations.
  10. Mutual Funds & ETFs

    JKL: iShares Morningstar Small-Cap Value ETF

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
RELATED FAQS
  1. What is the difference between a Sharpe ratio and a Traynor ratio?

    Understand the difference between two methods of evaluating portfolio returns on investment, the Sharpe ratio and the Treynor ... Read Answer >>
  2. What are the advantages and disadvantages of mutual funds?

    Mutual funds are currently the most popular investment vehicle and provide several advantages to investors, including the ... Read Answer >>
  3. Where do investors tend to put their money in a bear market?

    A bearish market is traditionally defined as a period of negative returns in the broader market to the magnitude of between ... Read Answer >>
  4. How can I prevent commissions and fees from eating up my trading profits?

    First off, understand that there is no universal system regarding trading commissions charged by brokerage firms. Some charge ... Read Answer >>
  5. What's the difference between a load and no-load mutual fund?

    A mutual fund is simply a large group of people who lump their money together for a management company to invest. And, like ... Read Answer >>
  6. How does a stop-loss order work, and what price is used to trigger the order?

    A stop-loss order, or stop order, is a type of advanced trade order that can be placed with most brokerage houses. The order ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center