Treynor Ratio
Return above the risk-free rate per unit of systematic risk, measured by beta.
Formula
Treynor Ratio = (Portfolio Return - Risk-Free Rate) / Portfolio Beta
Unit
ratio (x, times)
In depth
The Treynor ratio uses beta rather than total volatility in the denominator, which is the right choice when the portfolio is one component of a larger diversified holding — in that context only its systematic risk matters, since the specific risk is diversified away elsewhere. For an investor whose entire wealth is in the portfolio, the Sharpe ratio is the more relevant measure. The ratio inherits beta's instability and its dependence on the benchmark chosen. It becomes meaningless for a portfolio with a beta near zero, since the denominator collapses.
Worked example
A fund returning 14% with a beta of 1.2 against a 7% risk-free rate scores (14 - 7) / 1.2 = 5.83. A defensive fund returning 11% with a beta of 0.6 scores (11 - 7) / 0.6 = 6.67 — better per unit of market risk taken.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Treynor Ratio” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.