Treynor Ratio Calculator

Formula

The formula to calculate the Treynor Ratio (TR) is:

\[ TR = \frac{PR - RFR}{B} \]

Where:

\( TR \) is the Treynor ratio.
\( PR \) is the portfolio return (%).
\( RFR \) is the risk-free return (%).
\( B \) is the portfolio beta.

What is the Treynor Ratio?

The Treynor ratio measures the excess return a given portfolio achieved per unit of risk the portfolio takes. In other words, the Treynor ratio is the reward-to-volatility ratio. The risk in this formula is determined by the portfolio’s beta.

Example Calculation

Consider an example where:

Portfolio Return (PR): 12%
Risk-Free Return (RFR): 2%
Portfolio Beta (B): 1.5

Using the formula to calculate the Treynor Ratio:

\[ TR = \frac{12 - 2}{1.5} = \frac{10}{1.5} \approx 6.67 \]

This means that the Treynor ratio for this example is approximately 6.67.