Treynor Ratio Calculator
Calculate the Treynor ratio — excess return per unit of market risk (beta).
Compare portfolios or funds on a risk-adjusted basis using systematic risk only.
Treynor Ratio
The Treynor Ratio
The Treynor Ratio measures how much excess return a portfolio earns per unit of market risk (beta). It was developed by Jack Treynor in 1965 and is closely related to the Sharpe Ratio — the key difference is the risk measure used.
Formula:
Treynor Ratio = (Portfolio Return - Risk-Free Rate) / Beta
| Variable | Meaning |
|---|---|
| Portfolio Return | Annualized return of the portfolio (%) |
| Risk-Free Rate | Yield on a risk-free asset (typically 3-month T-bill) |
| Beta | Sensitivity of the portfolio to market movements |
Beta explained:
| Beta | Interpretation |
|---|---|
| Beta = 1.0 | Moves in lockstep with the market |
| Beta > 1.0 | More volatile than the market |
| Beta < 1.0 | Less volatile than the market |
| Beta < 0 | Moves opposite to the market |
Treynor vs Sharpe Ratio:
| Ratio | Risk Used | Best For |
|---|---|---|
| Treynor | Beta (systematic risk only) | Comparing one portfolio in a larger diversified mix |
| Sharpe | Standard deviation (total risk) | Evaluating a standalone portfolio |
Use Treynor when the portfolio is just one piece of a fully diversified investment — because unsystematic (company-specific) risk is diversified away anyway.
Interpreting results:
- Higher Treynor Ratio = better risk-adjusted performance per unit of market risk
- Only meaningful when comparing portfolios with positive beta
- Compare Treynor values across funds in the same asset class
- A negative Treynor (when return < risk-free rate) indicates the fund failed to beat cash despite taking on market risk
Example:
- Portfolio return: 12%, Risk-free rate: 4%, Beta: 1.2
- Treynor = (12% - 4%) / 1.2 = 6.67
- A fund with lower Treynor took more market risk per unit of return