Treynor-Ratio

The Jack Treynor in 1965 first defined Treynor ratio ( Treynor measure or even Reward to Volatility Ratio) is one of the Capital Asset Pricing Model (CAPM ) builds financial measure.

It refers to the ratio of the excess return to beta factor and thus the risk premium per unit of systematic risk received:

The return of the portfolio, the return on the risk-free asset and the beta of the portfolio is.

If two portfolios under the same conditions to choose from, thus achieving the portfolio with the higher Treynor ratio his return with lower systematic risk. In contrast to the Treynor ratio, the Sharpe ratio uses the standard deviation instead of the beta factor and thus measures the total risk, ie in addition to the systematic risk and unsystematic risk through lack of diversification of the portfolio.

Comparing two portfolios which do not consist of investments in the same market, the Sharpe ratio should be used, since the beta factor of the Treynor ratios expressing the variation sensitivity of a portfolio for each market. The Sharpe Ratio can be applied across the market, since the calculation is done on the standard deviation.

• Capital Market Theory
• Investment index