Treynor Ratio Calculator

The Treynor Ratio is a risk-adjusted performance measure that assesses the returns of an investment portfolio relative to its systematic risk, as measured by beta. A higher Treynor Ratio indicates better risk-adjusted performance, with each unit of systematic risk generating higher returns. It’s a useful tool for investors seeking to evaluate the efficiency of their portfolios in relation to market risk.

Treynor Ratio Calculator

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FAQs

How is Treynor Ratio calculated? The Treynor Ratio is calculated using the following formula: Treynor Ratio = (Portfolio Return – Risk-Free Rate) / Beta

Why do we calculate Treynor Ratio? The Treynor Ratio is used to evaluate the risk-adjusted performance of an investment portfolio or asset. It helps investors assess how well a portfolio has performed relative to its systematic risk, as measured by beta, and provides insight into whether the portfolio has generated excess returns for the level of risk taken.

Is a higher or lower Treynor Ratio better? A higher Treynor Ratio is generally considered better, as it indicates that the portfolio has generated higher returns per unit of systematic risk (beta). It suggests that the portfolio is more efficient in terms of risk-adjusted performance.

What is an ideal Treynor Ratio? There is no specific “ideal” Treynor Ratio, as the desired ratio can vary depending on an investor’s risk tolerance and investment objectives. Generally, a positive Treynor Ratio is preferred, but what is considered ideal will depend on the specific context and goals of the investor.

What is a 0.5 Treynor Ratio? A Treynor Ratio of 0.5 means that the portfolio has generated returns that are 0.5 times the risk-adjusted return of the risk-free rate per unit of systematic risk (beta). It indicates that the portfolio may not be efficiently utilizing its risk exposure to generate returns.

Is Treynor Ratio the same as Sharpe ratio? No, the Treynor Ratio and Sharpe Ratio are not the same. While both are used to measure risk-adjusted performance, they use different risk measures. The Treynor Ratio uses beta as the risk measure, while the Sharpe Ratio uses standard deviation (volatility) as the risk measure.

Is a negative Treynor ratio good? A negative Treynor Ratio is generally not desirable. It suggests that the portfolio has not generated returns that compensate for the systematic risk taken, indicating poor risk-adjusted performance.

Does Treynor ratio use standard deviation? No, the Treynor Ratio does not use standard deviation as a risk measure. It uses beta, which measures the sensitivity of a portfolio’s returns to the overall market returns.

What is the Treynor ratio of the S&P 500? I don’t have access to real-time data, and the Treynor Ratio of the S&P 500 would change over time. You can calculate it using historical data and the formula mentioned earlier.

Which is better, Sharpe or Treynor? The choice between the Sharpe Ratio and the Treynor Ratio depends on an investor’s preference for risk measures. If an investor prefers to use standard deviation as a risk measure, the Sharpe Ratio may be more suitable. If an investor wants to focus on systematic risk, beta, then the Treynor Ratio could be more appropriate. Neither ratio is inherently better; it depends on the context and objectives.

What is Jensen’s Alpha Treynor ratio? Jensen’s Alpha, also known as the Jensen Performance Index, measures the risk-adjusted returns of a portfolio by comparing its actual returns to the returns predicted by the Capital Asset Pricing Model (CAPM). It is not specifically a “Treynor ratio,” but it can be used in conjunction with the Treynor Ratio to assess portfolio performance.

What is a good Sharpe ratio? A good Sharpe Ratio can vary depending on the investor’s risk tolerance and the specific market conditions. However, a Sharpe Ratio above 1 is generally considered decent, and a ratio above 2 is often seen as excellent. Again, what is considered “good” will depend on the investor’s preferences.

What is a good Omega ratio in finance? A good Omega Ratio depends on the investor’s risk tolerance and objectives. A higher Omega Ratio suggests a better risk-adjusted return profile. A ratio greater than 1 indicates that the returns have been positively skewed (more upside potential), while a ratio less than 1 suggests a negatively skewed return distribution (more downside risk).

What is a good Sortino ratio? A good Sortino Ratio is typically higher than 1. It measures the risk-adjusted return of an investment, focusing on downside risk (standard deviation of negative returns) rather than overall volatility. A Sortino Ratio above 1 indicates that the investment has generated positive returns while minimizing downside risk.

Can Treynor ratio be more than 1? Yes, the Treynor Ratio can be greater than 1, indicating that the portfolio has generated returns that exceed the risk-adjusted return of the risk-free rate per unit of systematic risk.

What does a Sharpe ratio of 0.2 mean? A Sharpe Ratio of 0.2 suggests that the portfolio has generated returns that are 0.2 times the risk-adjusted return of the risk-free rate per unit of total portfolio risk (standard deviation). It indicates relatively lower risk-adjusted performance.

Why are there conflicting results when using the Treynor measure versus the Sharpe measure? Conflicting results can arise because the Treynor Ratio and Sharpe Ratio use different risk measures (beta vs. standard deviation). Depending on the characteristics of the portfolio and the market conditions, one ratio may provide a different perspective on risk-adjusted performance than the other.

What are the disadvantages of the Treynor measure? Some disadvantages of the Treynor Measure include its reliance on beta as a risk measure, which may not capture all types of risk, and its sensitivity to market conditions. Additionally, the choice of the risk-free rate can impact the results.

What is the difference between Jensen’s alpha vs. Sharpe ratio vs. Treynor ratio?

• Jensen’s Alpha measures the excess return of a portfolio over what would be predicted by the Capital Asset Pricing Model (CAPM).
• Sharpe Ratio measures risk-adjusted performance using standard deviation as the risk measure.
• Treynor Ratio measures risk-adjusted performance using beta as the risk measure.

What are the assumptions of the Treynor model? The Treynor Model assumes that investors are rational, markets are efficient, and the Capital Asset Pricing Model (CAPM) holds, meaning that systematic risk (beta) is the only relevant risk measure.

Is a higher Sharpe ratio better? Yes, a higher Sharpe Ratio is generally better because it indicates that a portfolio has generated higher returns per unit of total portfolio risk (standard deviation). It suggests better risk-adjusted performance.

What is similar to the Sharpe ratio? The Sortino Ratio is similar to the Sharpe Ratio but focuses on downside risk (standard deviation of negative returns) rather than overall volatility.

What percentage of the portfolio should be S&P 500? The allocation to the S&P 500 or any specific asset class within a portfolio depends on the investor’s goals, risk tolerance, and investment strategy. There is no one-size-fits-all answer, and it can vary widely among investors.

What is the average ROI of the S&P 500? Historically, the average annual return of the S&P 500 has been around 7-8%, but this can vary significantly over different time periods.

What is the average S&P 500 Sharpe ratio? The average Sharpe Ratio for the S&P 500 can vary depending on the time period analyzed. It’s advisable to calculate it using historical data to get an accurate figure.

What is the optimal portfolio of Sharpe called? The optimal portfolio on the efficient frontier with the highest Sharpe Ratio is often referred to as the “Tangency Portfolio” or the “Market Portfolio.”

What is a good Jensen’s alpha number? A positive Jensen’s Alpha indicates that a portfolio has outperformed its expected return based on the CAPM. A higher positive alpha is generally better.

What is the problem with the Sharpe ratio? One problem with the Sharpe Ratio is that it treats both upside and downside volatility equally, which may not align with some investors’ preferences. It may not adequately account for skewness in return distributions.

Is Jensen’s alpha the same as CAPM? Jensen’s Alpha is related to CAPM but is a separate measure. It quantifies the excess return of a portfolio beyond what would be predicted by the CAPM. CAPM is a model that calculates expected returns based on systematic risk (beta).

What does a 1.5 Sharpe ratio mean? A Sharpe Ratio of 1.5 indicates that the portfolio has generated returns that are 1.5 times the risk-adjusted return of the risk-free rate per unit of total portfolio risk (standard deviation). It suggests relatively good risk-adjusted performance.

What is the Sharpe ratio of Tesla? The Sharpe Ratio of Tesla or any specific stock would need to be calculated using historical data and the stock’s return and risk characteristics.

Is 5 a good Sharpe ratio? A Sharpe Ratio of 5 is exceptionally high and would typically be considered outstanding in terms of risk-adjusted performance. However, such high ratios are relatively rare and could be due to various factors.

What is the best alpha ratio? The “best” alpha ratio depends on the investor’s goals and risk tolerance. A positive alpha is generally preferred as it indicates that a portfolio is outperforming its expected return. The significance of alpha will vary from one investment to another.

What is a healthy leverage ratio? A healthy leverage ratio can vary depending on the industry and the specific financial circumstances of a company or individual. In general, a leverage ratio below 2:1 is often considered conservative and lower risk, while higher ratios indicate greater leverage and risk.

What is the main disadvantage of the Omega ratio? One main disadvantage of the Omega Ratio is that it focuses on the entire return distribution and may not provide a clear, intuitive measure of risk-adjusted performance compared to simpler ratios like the Sharpe Ratio.

Which is better, Sharpe ratio or Sortino ratio? The choice between the Sharpe Ratio and Sortino Ratio depends on the investor’s focus. If an investor is more concerned with minimizing downside risk, the Sortino Ratio may be more appropriate. If they want a more comprehensive measure of risk-adjusted performance, the Sharpe Ratio could be preferred.

What is the Sortino ratio in Morningstar? Morningstar does not have its own version of the Sortino Ratio. The Sortino Ratio is a widely used risk-adjusted performance measure, but it is not specific to any particular financial institution or service like Morningstar.

What is the major difference between Sharpe ratio and Sortino ratio? The major difference is that the Sharpe Ratio considers both upside and downside volatility (total portfolio risk), while the Sortino Ratio focuses exclusively on downside risk, specifically the standard deviation of negative returns.

Is a 0.5 Sharpe ratio good? A Sharpe Ratio of 0.5 suggests that the portfolio has generated returns that are 0.5 times the risk-adjusted return of the risk-free rate per unit of total portfolio risk (standard deviation). It may be considered average or below-average in terms of risk-adjusted performance.

What is a good return for a hedge fund? A good return for a hedge fund can vary widely depending on the fund’s investment strategy, risk profile, and market conditions. Hedge funds aim to provide positive returns regardless of market conditions, so what is considered good will depend on the specific fund’s objectives.

What is the best risk-adjusted return portfolio? The best risk-adjusted return portfolio depends on an investor’s goals and risk tolerance. It’s typically one that provides a balance between risk and return that aligns with the investor’s objectives.

What are the benefits of Treynor ratio? The benefits of the Treynor Ratio include its focus on systematic risk (beta), which can be particularly relevant for investors interested in market risk exposure. It provides a straightforward measure of risk-adjusted performance.

What is an example of a Treynor measure? An example of a Treynor measure could be calculating the Treynor Ratio for a portfolio by using its historical returns, the risk-free rate, and the portfolio’s beta. This ratio would provide insight into how well the portfolio has performed in relation to its systematic risk.

Is it better to have a high or low Treynor ratio? It is generally better to have a high Treynor Ratio, as it indicates that the portfolio has generated higher returns per unit of systematic risk (beta), implying better risk-adjusted performance.

How do you interpret Treynor ratio? The Treynor Ratio can be interpreted as the excess return (return above the risk-free rate) generated by the portfolio per unit of systematic risk (beta). A higher Treynor Ratio indicates better risk-adjusted performance, while a lower ratio suggests poorer performance.

What is an example of Jensen’s ratio? An example of Jensen’s Ratio would involve calculating the excess return of a portfolio compared to what would be expected based on the Capital Asset Pricing Model (CAPM). It quantifies how much value a portfolio manager has added or subtracted relative to the market’s risk-return profile.

What is the formula for the Treynor model? The Treynor Model primarily focuses on the Treynor Ratio, which is calculated as follows: Treynor Ratio = (Portfolio Return – Risk-Free Rate) / Beta

What is the Treynor-Black technique? The Treynor-Black technique is an extension of the Treynor Ratio that attempts to optimize portfolio performance by considering various asset classes and their expected returns and risk. It uses the Treynor Ratio as a key factor in the portfolio optimization process.

What is the Treynor model of portfolio management? The Treynor Model is a portfolio management approach that emphasizes the importance of systematic risk (beta) in evaluating and selecting investments. It uses the Treynor Ratio to assess and compare the risk-adjusted performance of portfolios and individual assets.

What hedge fund has the best Sharpe ratio? The hedge fund with the best Sharpe Ratio can change over time, and it would require up-to-date data to determine which hedge fund currently holds the top position in terms of risk-adjusted performance.

What does a negative Treynor ratio mean? A negative Treynor Ratio means that the portfolio has not generated returns that adequately compensate for the systematic risk (beta) it has taken on. It suggests that the portfolio’s performance has been subpar in relation to its risk exposure.

How do you compare Sharpe and Treynor ratio? To compare the Sharpe Ratio and Treynor Ratio, consider their differences:

• Sharpe Ratio uses total portfolio risk (standard deviation) as the risk measure.
• Treynor Ratio uses systematic risk (beta) as the risk measure. The choice between them depends on the investor’s preference for risk measurement.

What is the difference between Sharpe ratio and Omega ratio? The main difference is that the Sharpe Ratio measures risk-adjusted performance using standard deviation as the risk measure, whereas the Omega Ratio assesses performance based on the entire return distribution, considering both upside and downside returns.

Is a negative Sharpe ratio bad? Yes, a negative Sharpe Ratio is generally considered undesirable. It suggests that the portfolio has not generated returns that compensate for the total portfolio risk (standard deviation), indicating poor risk-adjusted performance.

What is the 75-5-10 rule? The 75-5-10 rule is a guideline for asset allocation within an investment portfolio. It suggests allocating 75% of the portfolio to equities (stocks), 5% to cash or cash equivalents, and 10% to bonds or fixed-income securities. This allocation can vary depending on individual goals and risk tolerance.

What is the rule 70-30 Buffett? The “70-30 Buffett Rule” refers to an investment strategy inspired by Warren Buffett’s approach. It suggests allocating 70% of the portfolio to value stocks and 30% to short-term government bonds or cash. It reflects Buffett’s preference for long-term value investing.

What is the 80-20 rule in the S&P 500? The “80-20 rule” is a general guideline for asset allocation that recommends allocating 80% of the portfolio to safer, more conservative investments (typically bonds or cash) and 20% to riskier assets (typically stocks). It’s a rule of thumb used by some investors to balance risk and return.

What was the worst 30-year return on the stock market? The worst 30-year return on the stock market can vary depending on the specific time period analyzed. Historically, periods that included the Great Depression or major financial crises may have had poor 30-year returns.

How much money do I need to invest to make $3000 a month? The amount of money you need to invest to make $3000 a month in income depends on various factors, including the expected rate of return on your investments and the duration over which you want to generate this income. For estimation purposes, if you assume a conservative annual return of 5%, you would need to invest around $720,000 to generate $3,000 per month ($36,000 per year).

What is the rolling 10-year average return of the S&P 500? The rolling 10-year average return of the S&P 500 can vary significantly over time. It is influenced by market conditions, economic cycles, and other factors. Historical data would need to be analyzed to calculate the specific 10-year average return for any given time period.

What is the average return of the S&P 500 in the last 30 years? The average return of the S&P 500 in the last 30 years can vary depending on the specific time period analyzed. Historically, the average annual return of the S&P 500 has been around 7-8%, but it can differ significantly over different 30-year periods.

What is the average return of the S&P 500 over the last 50 years? The average return of the S&P 500 over the last 50 years can vary depending on the specific time period analyzed. Historically, the average annual return of the S&P 500 over long-term periods has been around 7-8%, but it can differ significantly depending on the starting and ending points.

What is the longest drawdown of the S&P 500? The longest drawdown of the S&P 500 refers to the period during which the index experienced continuous declines in value before reaching a new peak. Historical records would need to be analyzed to determine the specific duration of the longest drawdown.