Calculate the Treynor ratio for risk-adjusted portfolio evaluation. Compare funds, benchmark vs market, and analyze beta sensitivity with Jensen's alpha.
The Treynor ratio measures how much excess return a portfolio earns per unit of systematic risk (beta). Named after Jack Treynor, it's the go-to metric for evaluating well-diversified portfolios where unsystematic risk has been diversified away, leaving only market (beta) risk.
The formula is simple: (Portfolio Return − Risk-Free Rate) / Portfolio Beta. A fund returning 14% with β = 1.1 when the risk-free rate is 4.5% has a Treynor ratio of 8.64. Compare this to the market's Treynor (market return − risk-free rate) to determine if the fund manager added value. Higher Treynor = better risk-adjusted performance.
This calculator computes the Treynor ratio for your portfolio and a comparison fund, benchmarks against the market, calculates Jensen's alpha, and provides beta sensitivity analysis. It answers the critical question: is your fund manager generating excess returns, or just taking on more market risk? Check the example with realistic values before reporting.
The Treynor ratio reveals whether your portfolio's returns come from skill or just market exposure. It lets you compare funds with different betas fairly — the fund with the higher Treynor is doing more with each unit of risk. That is especially useful for diversified portfolios, where total return alone can hide the cost of taking on extra market exposure. It also gives you a cleaner way to rank managers who follow different styles or hold different beta profiles.
Treynor Ratio = (Rp − Rf) / βp Market Treynor = (Rm − Rf) / 1.0 Jensen's Alpha = Rp − [Rf + βp × (Rm − Rf)] Excess Return = Rp − Rf Required Return = Rf + Market Treynor × βp
Result: Treynor: 8.64, Market Treynor: 5.50, Alpha: +3.45%
Excess return = 14% − 4.5% = 9.5%. Divided by beta 1.1 = Treynor of 8.64. The market Treynor is only 5.50, so this fund significantly outperforms on a risk-adjusted basis. Jensen's alpha of +3.45% confirms genuine outperformance.
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There's no absolute threshold. A positive Treynor means the portfolio earned above the risk-free rate. A Treynor above the market Treynor means the fund outperformed on a risk-adjusted basis.
Treynor is best for diversified portfolios (evaluates systematic risk only). Sharpe is best for total portfolio evaluation or undiversified holdings (considers total risk via standard deviation).
Yes — if the portfolio return is below the risk-free rate OR if beta is negative with positive excess returns. A negative Treynor usually means poor performance.
Treynor becomes undefined or extreme. The ratio only works for portfolios with meaningful market exposure. For market-neutral strategies, use Sharpe ratio instead.
Both measure risk-adjusted performance. Treynor gives a ratio (return per unit of beta). Alpha gives a percentage (actual return minus CAPM expected return). Both use beta as the risk measure.
Annually for long-term evaluation. Quarterly Treynor can be noisy. Use 3-5 year periods for meaningful fund manager evaluation.