Treynor Ratio is a performance indicator that estimates the volatility-adjusted efficacy of investment. It is similar to the Sharpe ratio but uses beta as a risk measure.
The Treynor ratio measures the return of an investment, such as a portfolio or a fund, adjusted to its beta (systematic risk). Beta shows how portfolio prices move compared to the market as a whole. High beta means the investment is volatile, and its value rises and falls much faster than the market. Thus, the high return may not result from the right investment decisions but from taking more risks if accompanied by a high beta.
What the Treynor Ratio Can Tell You
When comparing funds or portfolios, investors should consider not only absolute returns but also risks. A portfolio or a fund is a good investment if its returns do not come with additional risk.
Usually, a portfolio or a fund with a higher Treynor ratio is considered superior to one with a lower Treynor Ratio, other things equal, because the investor receives a higher return relative to the risk (beta) taken. That said, the Treynor ratio shouldn't be a sole indicator for making investment decisions as it does not explicitly state whether an investment is good or bad.
How to Use Treynor Ratio Calculator
To calculate Treynor Ratio for your portfolio, enter your holdings below. Alternatively, you can choose one of the predefined lazy portfolios.
If you want to calculate the Treynor ratio for a mutual or exchange-traded fund, enter it as a single portfolio holding.
Then select the portfolio benchmark. It will be used as the "market" when calculating beta.
You can also adjust portfolio rebalance settings and the risk-free rate — a theoretical return rate with zero risks, usually based on the yield on U.S. Treasury securities. After that, click Calculate and get your results.
Treynor Ratio Formula
— Return of portfolio
— Risk-free rate
— Portfolio beta
Your portfolio is empty. Add symbols manually or select an existing portfolio.
Treynor Ratio Settings