Treynor Ratio & Alpha | Risk Adjusted Return | Mutual funds

Treynor Ratio
Reward to Risk Ratio
How much Market Risk We take ?
How much returns did the scheme Deliver?
Rp = Portfolio Return, Rf = Risk Free Return
Denomiator = Beta of Portfolio
Treynor Ratio - Example
Risk free return is 5%, and a scheme with Beta of 1.2 earned a return of 8%
Rp-Rf = 8% - 5%  3%
Beta of the Portfolio = 1.2
Treynor Ratio = (Rp – Rf) / Beta
Treynor Ratio = 3 / 1.2 =2.5
What does it mean?

Alpha
The difference between a scheme’s actual return and its optimal return (Benchmark return).
Benchmark Index like Sensex has given 30%
Scheme has given 35%
Alpha = 35% - 30% = 5%
Alpha – the fund manager’s performance.
Positive alpha - out-performance
negative alpha - under-performance.

[crazyox]

if Rp-Rf = 8%-5%= 3% then it should be 3%/1.2 = 0.03/1.2= 0.025 right

[eklavyasingh]

Sir what to do if in ques it is given that data is of 6 months in respect of treynor ratio?? Please reply ASAP