|
|
|
|
|
Treynor RatioThe Treynor Ratio is a measurement of the returns earned in excess of that which could have been earned on a riskless investment (i.e. Treasury Bill) (per each unit of market risk assumed). The Treynor Ratio (sometimes called Reward-to-Variability-Ratio) relates excess return over the risk free rate to the additional risk taken; however systematic risk instead of total risk is used. The higher the Treynor Ratio, the better the performance under analysis. T = (r - rf)/b T -> Treynor ratio r -> Portfolio return rf -> Riskfree rate b -> Portfolio beta Like the Sharpe Ratio, the Treynor Ratio (T) does not quantify the value added, if any, of active portfolio management. It is a ranking criterion only. A ranking of portfolios based on the Treynor Ratio is only useful if the portfolios under consideration are sub-protfolios of a broader, fully diversified portfolio. If this is not the case, portfolios with identical systematic risk, but different total risk, will be rated the same. But the portfolio with a higher total risk is less diversified and therefore has a higher unsystematic risk which is not priced in the market.
|
 |
|
| Copyright 2005-2009 OnPedia.com. All Rights Reserved |
|
|