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What is The Treynor Ratio?
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Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Treynor Ratio”
Treynor Ratio is a measurement of efficiency utilizing the relationship between annualized risk-adjusted return and risk. Unlike Sharpe Ratio, Treynor Ratio utilizes "market" risk or beta instead of total risk or a standard deviation. Good performance efficiency is measured by a high ratio.
Developed by Jack Treynor, the Treynor ratio also known as the "reward-to-volatility ratio attempts to measure how well an investment has compensated its investors given its level of risk. The Treynor ratio relies on beta, which measures an investment's sensitivity to market movements, to gauge risk. The premise underlying the Treynor ratio is that systematic risk--the kind of risk that is inherent to the entire market should be penalized because it cannot be diversified away.
By Barry Norman, Investors Trading Academy
Our word of the day is “Treynor Ratio”
Treynor Ratio is a measurement of efficiency utilizing the relationship between annualized risk-adjusted return and risk. Unlike Sharpe Ratio, Treynor Ratio utilizes "market" risk or beta instead of total risk or a standard deviation. Good performance efficiency is measured by a high ratio.
Developed by Jack Treynor, the Treynor ratio also known as the "reward-to-volatility ratio attempts to measure how well an investment has compensated its investors given its level of risk. The Treynor ratio relies on beta, which measures an investment's sensitivity to market movements, to gauge risk. The premise underlying the Treynor ratio is that systematic risk--the kind of risk that is inherent to the entire market should be penalized because it cannot be diversified away.
By Barry Norman, Investors Trading Academy
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