Treynor Ratio Calculator: Measure Risk-Adjusted Portfolio Performance

Unlock the power of risk-adjusted returns with our Treynor Ratio Calculator. Discover how this essential tool can revolutionize your investment strategy, compare portfolios objectively, and optimize asset allocation. Learn to harness the Treynor Ratio for smarter, more informed financial decisions. Ready to elevate your investing game? Dive in now!

Treynor Ratio Calculator

Enter the total return of the investment/portfolio as a percentage.

Enter the risk-free rate of return as a percentage.

Enter the beta coefficient of the investment/portfolio.

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How to Use the Treynor Ratio Calculator Effectively

Our Treynor Ratio Calculator is designed to help investors and financial analysts measure the risk-adjusted performance of an investment portfolio. To get accurate and meaningful results, follow these straightforward steps:

  1. Enter the total returns (%) for your investment or portfolio. For example, you might input 7.50 or 14.25 as the return percentage.
  2. Fill in the risk-free rate (%), which represents the minimum expected return without risk. Sample inputs could be 3.00 or 4.50.
  3. Provide the beta coefficient of your investment/portfolio. This quantifies systematic risk. Common beta values range from 0.85 to 1.10.
  4. Click the calculate button to view your Treynor Ratio, which expresses the portfolio’s excess return relative to its systematic risk.

The output will show the Treynor Ratio, a key indicator that tells you how much extra return your portfolio earns for each unit of market risk taken.

Treynor Ratio Calculator: Definition, Purpose, and Benefits

The Treynor Ratio, also known as the reward-to-volatility ratio, is a critical financial metric that evaluates the risk-adjusted returns of an investment portfolio by focusing on systematic risk (market risk).

Developed by Jack Treynor in 1965, this ratio helps investors understand how well their portfolio compensates them for the inherent market risk. Unlike other metrics that measure total risk, the Treynor Ratio isolates the impact of beta, making it especially useful for diversified portfolios.

The Treynor Ratio is calculated using the formula:

$$ \text{Treynor Ratio} = \frac{R_p – R_f}{\beta_p} $$
  • Rp = Portfolio return (%)
  • Rf = Risk-free rate of return (%)
  • βp = Beta coefficient of the portfolio

Key Advantages of Using the Treynor Ratio Calculator

  • Risk-Adjusted Performance Analysis: Compares returns relative to systematic risk, enabling meaningful evaluation of investments with varying market exposures.
  • Improved Benchmarking: Easily assess how your portfolio stacks up against market indices or peer investments on a risk-adjusted basis.
  • Portfolio Optimization Guidance: Identifies assets or funds delivering superior risk-adjusted returns to help you refine your portfolio allocation.
  • Diversification Insight: Evaluates your portfolio’s exposure to market risk, indicating how effectively it is diversified.
  • Investment Strategy Evaluation: Assists in measuring the effectiveness of investment approaches, guiding informed asset management decisions.

Practical Example Calculations Using the Treynor Ratio Calculator

To demonstrate how the Treynor Ratio can provide valuable insights, consider the following scenarios:

Example 1: Comparing Two Exchange-Traded Funds (ETFs)

  • ETF X: Returns = 9.0%, Beta = 1.3
  • ETF Y: Returns = 7.5%, Beta = 0.9
  • Risk-free rate = 2.0%

Treynor Ratio calculations:

$$ \text{ETF X Treynor Ratio} = \frac{9.0 – 2.0}{1.3} = 5.38\% $$ $$ \text{ETF Y Treynor Ratio} = \frac{7.5 – 2.0}{0.9} = 6.11\% $$

Despite ETF X having higher raw returns, ETF Y offers better risk-adjusted performance relative to systematic market risk.

Example 2: Assessing Portfolio Performance Across Fiscal Years

  • Year 1: Returns = 13.0%, Beta = 1.05, Risk-free rate = 2.5%
  • Year 2: Returns = 10.0%, Beta = 0.95, Risk-free rate = 3.0%

Treynor Ratio per year:

$$ \text{Year 1 Treynor Ratio} = \frac{13.0 – 2.5}{1.05} = 10.0\% $$ $$ \text{Year 2 Treynor Ratio} = \frac{10.0 – 3.0}{0.95} = 7.37\% $$

This shows stronger risk-adjusted returns in Year 1 compared to Year 2, indicating changing portfolio effectiveness over time.

Example 3: Benchmarking Against the Overall Market

  • Your Portfolio: Returns = 8.5%, Beta = 0.88
  • Market Benchmark: Returns = 7.0%, Beta = 1.0
  • Risk-free rate: 2.0%

Calculated Treynor Ratios:

$$ \text{Your Portfolio} = \frac{8.5 – 2.0}{0.88} = 7.95\% $$ $$ \text{Market Benchmark} = \frac{7.0 – 2.0}{1.0} = 5.0\% $$

Your portfolio outperforms the market benchmark on a risk-adjusted basis, signaling efficient management relative to market risk.

Important Disclaimer

The calculations, results, and content provided by our tools are not guaranteed to be accurate, complete, or reliable. Users are responsible for verifying and interpreting the results. Our content and tools may contain errors, biases, or inconsistencies. We reserve the right to save inputs and outputs from our tools for the purposes of error debugging, bias identification, and performance improvement. External companies providing AI models used in our tools may also save and process data in accordance with their own policies. By using our tools, you consent to this data collection and processing. We reserve the right to limit the usage of our tools based on current usability factors. By using our tools, you acknowledge that you have read, understood, and agreed to this disclaimer. You accept the inherent risks and limitations associated with the use of our tools and services.

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Discover how the Treynor Ratio helps investors measure portfolio performance while accounting for market risk in this comprehensive infographic.

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