Treynor Ratio Calculator
Calculate systematic risk-adjusted returns with CAPM expected return and Jensen's alpha cross-reference.
What Treynor Ratio Calculator does
The Treynor Ratio Calculator on Financial Toolset computes systematic risk-adjusted returns by measuring an investment's excess return per unit of market risk (beta). Users input the expected return, beta coefficient, and risk-free rate to determine how efficiently a portfolio compensates for systematic risk. The output presents the calculated Treynor ratio alongside CAPM expected return and Jensen's alpha, allowing cross-reference of performance metrics. This provides a standardized method to compare different investments based on their efficiency relative to market movements, suitable for evaluating portfolio performance against benchmark indices.
How to use the Financial Toolset Treynor Ratio Calculator
- 1
Enter the expected return of the investment or portfolio
- 2
Input the beta value representing systematic risk relative to the market
- 3
Provide the average risk-free rate for the calculation period
- 4
View the calculated Treynor ratio, CAPM expected return, and Jensen's alpha in the results section
Best for
Investment professionals, financial analysts, and students who need to evaluate portfolio performance relative to systematic risk and compare efficiency across different assets or benchmarks.
Limitations
- Relies on historical beta values which may not predict future performance
- Assumes a linear relationship between risk and return per CAPM assumptions
- Requires accurate input of risk-free rate and expected return for meaningful results
Treynor Ratio Calculator FAQ
- What does a higher Treynor ratio indicate about an investment?
- A higher Treynor ratio indicates better risk-adjusted performance per unit of systematic risk, meaning the investment generates more excess return for each unit of market risk taken.
- How does the Treynor ratio differ from the Sharpe ratio?
- The Treynor ratio uses beta (systematic risk) as the risk measure, while the Sharpe ratio uses total standard deviation, making Treynor more suitable for diversified portfolios where unsystematic risk is minimal.
- Can the Treynor ratio be negative, and what does that mean?
- Yes, a negative Treynor ratio occurs when an investment's return is below the risk-free rate, indicating the investor would have been better off holding risk-free assets.
- Is the Treynor ratio appropriate for individual stocks or only portfolios?
- The Treynor ratio is most meaningful for well-diversified portfolios where unsystematic risk has been eliminated, as beta only captures systematic risk exposure.
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