Plain-English definitions, reviewed by an independent investor
Treynor Ratio
The Treynor ratio measures return per unit of market risk (beta), for diversified portfolios.
The Treynor ratio measures return per unit of market risk (beta), for diversified portfolios.
Treynor = (Return − Risk-Free) ÷ Beta
Why it matters
It rewards market-risk efficiency, best for already-diversified funds.
Common confusion
It ignores non-market risk, so it suits broad portfolios, not single stocks.
Frequently Asked Questions
Treynor vs Sharpe?
Treynor uses beta (market risk); Sharpe uses total volatility.
Higher better?
Yes, more return per unit of market risk taken.