Treynor Ratio Calculator
The Treynor ratio measures how well a portfolio compensates investors for the market risk they bear. It was developed by Jack Treynor and published in the Harvard Business Review in 1965, the same year William Sharpe introduced the Sharpe ratio. While the Sharpe ratio uses total standard deviation as its risk measure, the Treynor ratio uses beta, which captures only the systematic (market) component of risk. This makes it most useful when comparing funds within a larger diversified portfolio, where fund-specific (unsystematic) risks are already diversified away. A fund that earns 15% with a beta of 1.2 and a risk-free rate of 5% has a Treynor ratio of (15 - 5) / 1.2 = 8.33. The market portfolio by definition has a Treynor ratio of (Market Return - Risk-Free Rate), against which all funds should be compared.
Treynor ratio formula
Treynor Ratio = (Portfolio Return - Risk-Free Rate) / Beta
Market Treynor = (Market Return - Risk-Free Rate) / 1.0
Jensen's Alpha = Port Return - [RF + Beta x (Market Return - RF)]
If the Portfolio Treynor Ratio exceeds the Market Treynor Ratio, the portfolio has outperformed the market on a risk-adjusted basis.
Interpreting the Treynor ratio
- Treynor ratio above market Treynor: portfolio has generated alpha after adjusting for systematic risk.
- Treynor ratio below market Treynor: underperformance on a systematic risk-adjusted basis.
- High beta + high return can have same Treynor as low beta + low return: they carry equivalent systematic risk.
- The Treynor ratio is most appropriate for mutual funds and ETFs added to a diversified portfolio.
- For stand-alone investments, use the Sharpe ratio which accounts for total risk.
Treynor ratio: frequently asked questions
What is the Treynor ratio?
The Treynor ratio, developed by Jack Treynor in 1965, measures the excess return (above the risk-free rate) per unit of systematic risk (beta). Unlike the Sharpe ratio which uses total volatility, the Treynor ratio uses only market-related risk, making it appropriate for comparing well-diversified portfolios where unsystematic risk has been eliminated.
When should I use the Treynor ratio vs. the Sharpe ratio?
Use the Treynor ratio when comparing funds that are components of a larger diversified portfolio, because each component's unique risk is diversified away. Use the Sharpe ratio when comparing stand-alone investments where total risk (including unsystematic) matters to the investor.
What is a good Treynor ratio?
Higher is better. There is no universal threshold, since Treynor ratios depend on the risk-free rate environment. Compare funds with similar mandates and benchmark them against the market portfolio's Treynor ratio: (Market Return - Risk-Free Rate) / 1.0. Any fund with a higher Treynor ratio than the market has superior risk-adjusted performance.
What does a negative Treynor ratio mean?
A negative Treynor ratio can result from a portfolio return below the risk-free rate or a negative beta. If the return is below the risk-free rate and beta is positive, the negative ratio indicates poor performance. If beta is negative, interpretation requires care since the direction of risk exposure is opposite to the market.
Can I compare Treynor ratios across different asset classes?
Only with caution. Beta is measured relative to a specific benchmark (usually an equity index). If two funds use different benchmarks, their betas are not comparable, making cross-asset Treynor ratio comparisons potentially misleading. Within the same asset class with the same benchmark, Treynor ratios are directly comparable.
Official sources
- Federal Reserve Bank of St. Louis (FRED): 3-Month T-Bill Rate (Risk-Free Rate).
- SEC: Mutual Fund Guide - Performance Measures.
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.