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? Use the beta sensitivity view to see how the ratio shifts with different market exposure assumptions.
Use Treynor when you want to judge performance against market risk, not total volatility. It is the right lens for diversified portfolios, where beta captures the risk that matters and a simple return comparison can overstate skill. It also helps separate a manager who is genuinely adding alpha from one who is just taking a larger market bet.
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.
Compare the Treynor ratio only across portfolios with meaningful market exposure. A higher value means more excess return per unit of beta, but the ratio is only useful when the portfolio is diversified enough that unsystematic risk is not dominating outcomes.
Make sure the return period matches the beta measurement window and the risk-free rate is quoted on the same basis. If beta is near zero, the ratio becomes unstable and Sharpe ratio is usually the better benchmark. If the market Treynor exceeds the portfolio Treynor, the benchmark is earning more return for each unit of systematic risk.
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This calculator divides excess portfolio return by beta to estimate return earned per unit of systematic market risk. It also compares the same ratio against the benchmark market input and shows Jensen-style residual return for context.
The worksheet is only meaningful when beta comes from the same return window as the portfolio return. It is best used for diversified portfolios rather than concentrated bets.
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.