Treynor Ratio
Definition
A risk-adjusted performance measure that calculates excess return per unit of systematic risk (beta).
Explanation
Treynor Ratio = (Rp - Rf) / β. Unlike the Sharpe Ratio (which uses total risk), the Treynor Ratio uses only systematic risk. This makes it appropriate for evaluating well-diversified portfolios where idiosyncratic risk has been eliminated. A portfolio with Treynor Ratio of 8 earns 8% of excess return per unit of beta. The Treynor Ratio is most useful for comparing portfolios within a larger diversified allocation, where total risk of each component matters less than its contribution to systematic risk.
Formula
Treynor Ratio = (Rp - Rf) / β
How Stoquity Uses This
Stoquity incorporates treynor ratio analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.