Measure excess return per unit of market risk, using beta rather than total volatility.
The Treynor ratio divides excess return by beta, so it measures reward for systematic market risk only. It is the right measure for a portfolio held as one component of a diversified whole, where specific risk is already diversified away. Treynor and Sharpe can rank portfolios differently, and the gap tells you how much of the risk is specific rather than systematic.
Treynor Ratio
Treynor Ratio = (portfolio return − risk-free rate) ÷ portfolio beta
Treynor Ratio = (portfolio return − risk-free rate) ÷ portfolio beta The Treynor ratio divides excess return by beta, so it measures reward for systematic market risk only. It is the right measure for a portfolio held as one component of a diversified whole, where specific risk is already diversified away.
Treynor and Sharpe can rank portfolios differently, and the gap tells you how much of the risk is specific rather than systematic.
This calculator takes 3 inputs: Portfolio return, Risk-free rate, Portfolio beta. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.