1. What is the Treynor Ratio?

The Treynor ratio measures risk-adjusted return of an investment portfolio by dividing excess return over the risk-free rate by the portfolio's beta. It evaluates how much excess return was generated per unit of systematic risk taken.

2. How Does the Calculator Work?

The calculator uses the Treynor ratio formula:

Where:

• \( Return \) — Portfolio return percentage
• \( Risk\ Free\ Rate \) — Risk-free rate percentage (typically Treasury bills)
• \( Beta \) — Portfolio's beta (systematic risk measure)

Explanation: The ratio shows how much excess return was earned per unit of market risk (beta) taken.

3. Importance of Treynor Ratio

Details: The Treynor ratio helps investors compare performance of different portfolios after adjusting for systematic risk. Higher values indicate better risk-adjusted returns.

4. Using the Calculator

Tips: Enter portfolio return and risk-free rate as percentages, and beta as a positive number. Beta cannot be zero (division by zero).

5. Frequently Asked Questions (FAQ)

Q1: What's a good Treynor ratio?
A: Higher is better. Positive means the portfolio outperformed the risk-free rate after adjusting for market risk.

Q2: How does Treynor differ from Sharpe ratio?
A: Treynor uses beta (systematic risk) while Sharpe uses standard deviation (total risk) in the denominator.

Q3: What time period should be used?
A: Typically annual returns, but any consistent period can be used as long as all inputs use the same period.

Q4: What risk-free rate should I use?
A: Use a rate matching your investment horizon (e.g., 3-month T-bills for short-term, 10-year Treasuries for long-term).

Q5: Limitations of the Treynor ratio?
A: Only measures systematic risk, assumes beta remains constant, and requires beta to be positive and meaningful.