Treynor Ratio

Developed by American economist Jack Treynor, the Treynor Ratio is a way to measure how well a portfolio rewarded investors for the amount of risk it took on, over a certain time period.

Investments that can produce higher returns with less risk or the same amount of risk as other investments are generally considered more attractive.

The Treynor Ratio is similar to the Sharpe Ratio, which also looks at risk-adjusted returns. While the Treynor Ratio compares excess returns to an investment’s beta, or sensitivity to a market index’s movements, the Sharpe Ratio looks at excess returns in relation to an investment’s standard deviation, or total risk (measured as volatility).