Treynor Ratio

Return Metrics
Updated Apr 2026 • Has calculator

Measures excess return per unit of systematic (market) risk — useful for comparing diversified portfolios.

What is Treynor Ratio?

The Treynor ratio calculates how much excess return a portfolio earns per unit of systematic risk (beta), rather than per unit of total risk like the Sharpe ratio. Because it uses beta in the denominator, the Treynor ratio is most appropriate when comparing well-diversified portfolios where unsystematic (idiosyncratic) risk has been eliminated. For a single concentrated stock, the Sharpe ratio is more relevant. When evaluating multiple funds that are all components of a larger diversified portfolio, ranking by Treynor ratio gives a better picture of each fund's contribution. A higher Treynor ratio is better: the portfolio generates more excess return for each unit of market risk taken.

Formula

Treynor = (Rp − Rf) / β

Worked Example

Worked example — Hypothetical Balanced Fund (β = 0.75)

Calendar Year 2023

Step 1  Portfolio return: 10.50%
Step 2  Risk-free rate: 4.30%
Step 3  Portfolio beta: 0.75
Step 4  Treynor = (10.50% − 4.30%) / 0.75 = 6.20% / 0.75
Step 5  Treynor = 8.27 — per unit of market risk the fund earned 8.27% excess return

Source: CFA Institute — Portfolio Management, 7th ed. (2023-01-01)

Calculate Treynor Ratio

Annualised portfolio return

10-year US Treasury yield

Portfolio's systematic risk vs the market benchmark

Treynor Ratio

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Not investment advice.

How to Interpret Treynor Ratio

< 0
Negative — return below risk-free; poor systematic-risk trade-off
0 – 5
0–5: Modest — limited excess return per unit of beta
5 – 10
5–10: Good — solid risk-adjusted return vs systematic risk
> 10
Above 10: Excellent — high excess return per unit of market risk

📚 Portfolio Performance — Complete the path

  1. Sharpe Ratio
  2. Sortino Ratio
  3. Treynor Ratio
  4. Jensen's Alpha
  5. Information Ratio
Sources
  1. Treynor, J.L. — How to Rate Management of Investment Funds, Harvard Business Review, 1965
  2. CFA Institute — Portfolio Management, 7th ed., Ch. 6
  3. Investopedia — Treynor Ratio