This paper uses Treynor’s ratio (i.e. So, the market index yielded a better risk-adjusted return during that period. In the financial world, risk management is the process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions. This variation uses a portfolio’s beta or market correlation rather than the standard deviation or total risk. A higher ratio result is more desirable and means that a given portfolio is likely a more suitable investment. Hence, on a risk-adjusted basis, the stock portfolio performed better. It is similar to the Sharpe ratio, but instead of using volatility in the denominator, it uses the beta of equity or portfolio. Beta is an integral part of the Capital Asset Pricing Model (CAPM). Difference Between the Treynor Ratio and Sharpe Ratio, How to Use the Sharpe Ratio to Analyze Portfolio Risk and Return. Description: Jack Treynor extended the work of William Sharpe by formulating treynor ratio. Being a risk-adjusted measure of historical performance, the Treynor Ratio can be used in many different ways in financial analysis. It is a performance metric that measures the return a portfolio generates in excess of the risk-free rate and divides that by the systematic risk. positive effect on the Treynor ratio, the correlation between the portfolio and the market has a negative effect and the standard deviation of the portfolio has a negative effect. Treynor Ratio=rp−rfβpwhere:rp=Portfolio returnrf=Risk-free rateβp=Beta of the portfolio\begin{aligned} &\text{Treynor Ratio}=\frac{r_p - r_f}{\beta_p}\\ &\textbf{where:}\\ &r_p = \text{Portfolio return}\\ &r_f = \text{Risk-free rate}\\ &\beta_p = \text{Beta of the portfolio}\\ \end{aligned}​Treynor Ratio=βp​rp​−rf​​where:rp​=Portfolio returnrf​=Risk-free rateβp​=Beta of the portfolio​. Mit den Ertragschancen steigen die Risiken. Treynor ratio. Risk in the Treynor ratio refers to systematic risk as measured by a portfolio's beta. A security’s or portfolio’s beta is a measurement of the volatility of returns relative to the overall market. the risk free rate is greater than the expected return, and the beta is positive. Based on the Treynor ratios alone, HDFC Equity offers a much more attractive reward-to-volatility profile. The bigger the Treynor Ratio, the better, but the magnitude of the difference between two ratios is not indicated in the values since they are ordinal. A fund may seem to be making more returns, but at the same time, the returns may be subject to significantly more volatility than the one that appears to be making a lower return. Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. The Treynor ratio shows the risk-adjusted performance of the fund, so it uses actual returns rather than expected returns. The Treynor reward to volatility model, named after Jack L. Treynor, is a measurement of the returns earned in excess of that which could have been earned from a risk-free investment. I have calculated beta to be negative from my monthly returns. In both cases, the measure of return is the excess over the risk-free investment. When calculating it, these are the steps to follow: The Treynor Ratio is not graded, but there are a few things you need to know about it: As a measure of the risk-adjustment performance based on systematic risk, the Treynor Ratio shows how much return an investment in a particular market, such as a mutual fund, an ETF, or a portfolio of stocks, earned per unit risk taken by the investment over that period. This paper presents a generalization of the Treynor ratio in a multi-index setup. Another concern is that the market benchmark used to measure the beta must be appropriate for the fund you are analyzing as that can determine the accuracy of the measurement. 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