# Treynor Ratio

Learn more about Treynor Ratio

Last updated

Learn more about Treynor Ratio

Last updated

The Treynor ratio is a measure of the performance of an investment relative to its systematic risk, which is the risk that cannot be eliminated through diversification. The ratio was developed by researcher Jack Treynor and is often used in finance to evaluate the performance of investment funds, portfolios, and trading strategies.

The Treynor ratio is calculated by taking the difference between the average return of the investment and the risk-free interest rate, and then dividing this difference by the investment's beta.

Beta measures the sensitivity of an investment to market fluctuations. The higher the beta, the more sensitive the investment is to market fluctuations and thus the riskier it is.

*rp* = Portfolio return

*rf *= Risk-free rate

*β* = Beta of the portfolio

More info : *Investopedia*

$\text{Treynor Ratio} = \frac{r_p - r_{rf}}{\beta}$

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