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Trading and Investment Terms

Treynor Index

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.

 

The Formula for the Treynor Ratio is:

Treynor Ratio=rp​−rf​​/ βp

 where:

rp​=Portfolio return

rf​​​=Risk-free rate

βp​=Beta of the portfolio​

 

 

 

 

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