Treynor Ratio
The treynor ratio is a measure of the relationship between the beta coefficient and the standard deviation of a security. The ratio is named after the American economist Jack Treynor, who first proposed it in 1961.
The treynor ratio is calculated by dividing the security’s beta coefficient by its standard deviation. A high treynor ratio indicates that the security has a high beta coefficient and a low standard deviation. A low treynor ratio indicates that the security has a low beta coefficient and a high standard deviation.
The treynor ratio is used to assess the risk-return relationship of a security. A security with a high treynor ratio is considered to be more risky than a security with a low treynor ratio. This is because high beta coefficients indicate that the security’s returns are more sensitive to changes in the market.
The treynor ratio is a useful tool for investors to use when evaluating securities. It is a measure of risk that can be used to help investors make informed investment decisions.
