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KembaraXtra-Islamic Finance-Islamic Capital Market
Treynor Ratio
Meaning of Treynor Ratio
The Treynor ratio is a risk-adjusted performance measure that evaluates how well an investment or portfolio generates returns relative to its systematic risk. Systematic risk is the risk that affects the entire market and cannot be eliminated through diversification.
Purpose of the Treynor Ratio
The Treynor ratio is used to determine whether investors are being adequately compensated for taking market risk. It focuses only on market-related risk rather than total volatility.
Type of Risk Used (Beta)
The Treynor ratio uses beta as the risk measure. Beta shows how sensitive an investment is to movements in the overall market.
Treynor Ratio
Meaning of Treynor Ratio
The Treynor ratio is a risk-adjusted performance measure that evaluates how well an investment or portfolio generates returns relative to its systematic risk. Systematic risk is the risk that affects the entire market and cannot be eliminated through diversification.
Purpose of the Treynor Ratio
The Treynor ratio is used to determine whether investors are being adequately compensated for taking market risk. It focuses only on market-related risk rather than total volatility.
Type of Risk Used (Beta)
The Treynor ratio uses beta as the risk measure. Beta shows how sensitive an investment is to movements in the overall market.
- Beta = 1 → moves in line with the market
- Beta > 1 → more volatile than the market
- Beta
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