Treynor Ratio Calculator

How to Use the Treynor Ratio Calculator

The Treynor ratio (Treynor measure) compares excess return to systematic risk (beta). Use this calculator to evaluate portfolios, funds, or strategies on a risk-adjusted basis.

1. Enter Portfolio Return: Input the expected or historical annual return of your portfolio or fund (as a percentage, e.g. 12 for 12%).
2. Enter Risk-Free Rate: Use the current yield on short-term government bonds (e.g. 3-month T-bill) as the risk-free rate (as a percentage).
3. Enter Beta: Beta measures systematic risk relative to the market. A beta of 1 means market-level risk; use a value greater than 0.
4. Interpret the Treynor Ratio: Higher values indicate better risk-adjusted return per unit of market risk. Compare funds or portfolios with similar objectives.

What is the Treynor Ratio?

The Treynor ratio (also called the Treynor measure) is a risk-adjusted performance metric developed by Jack Treynor. It measures the excess return earned per unit of systematic risk (beta)—i.e. risk that cannot be diversified away.

Unlike the Sharpe ratio, which uses total volatility (standard deviation), the Treynor ratio uses only beta. So it answers: "How much extra return did I get for each unit of market risk I took?"

The Formula

• Rp: Portfolio (or asset) return.
• Rf: Risk-free rate of return.
• β (Beta): Systematic risk of the portfolio relative to the market.

Treynor Ratio vs Sharpe Ratio

Both measure risk-adjusted return, but they use different risk measures:

• Treynor: Uses beta (systematic risk). Best when you assume the portfolio is well diversified; only market risk matters.
• Sharpe: Uses standard deviation (total volatility). Better when the portfolio may have significant idiosyncratic risk or is not fully diversified.

For well-diversified portfolios, Treynor and Sharpe often tell a similar story. For concentrated portfolios, Sharpe can be more informative.

Why the Treynor Ratio Matters for Traders

The Treynor ratio helps you compare managers or strategies that take different amounts of market risk. A fund with higher beta should deliver higher excess return to be considered good; the Treynor ratio captures that in one number.

• Fund comparison: Compare mutual funds or ETFs with similar objectives on a fair, risk-adjusted basis.
• Portfolio evaluation: See if your portfolio is rewarding you adequately for the market risk you carry.
• Strategy selection: Choose between strategies that have different betas by looking at risk-adjusted return, not raw return alone.

Frequently Asked Questions