The Treynor Ratio is a portfolio performance measure that adjusts for systematic risk.
Treynor ratio is a measure of the returns earned more than the risk-free return at a given level of market risk. It highlights the risk-adjusted profits generated by a mutual fund scheme.
In contrast to the Sharpe Ratio, which adjusts return with the standard deviation of the portfolio, the Treynor Ratio uses the Portfolio Beta, which is a measure of systematic risk.
These ratios are concerned with the risk and return performance of a portfolio and are a quotient of return divided by risk.
This ratio was given by Jack Treynor, thereby expanding the contribution of William Sharpe towards modern portfolio theory.
Treynor Ratio=rp−rf/ βp
βp=Beta of the portfolio