What is the Treynor Ratio and how can I use it in my investment strategy?
An example of an AI chatbot conversation about investing strategies using the Treynor Ratio.
What is the Treynor Ratio and how can I use it in my investment strategy?
The Treynor Ratio measures a portfolio's return relative to its risk, using beta as the risk measure. It's useful for comparing the performance of different investments.
How do I calculate the Treynor Ratio for my portfolio?
To calculate the Treynor Ratio, subtract the risk-free rate from your portfolio's return, then divide by the portfolio's beta. The formula is: (Portfolio Return - Risk-Free Rate) / Beta.
What is a good Treynor Ratio value?
A Treynor Ratio greater than 1 is generally considered good, indicating that the portfolio is providing a higher return per unit of risk. However, it should be compared with other investments.
Can you give me an example of how to apply it?
Sure! If your portfolio has a return of 12%, the risk-free rate is 2%, and the beta is 1.5, the Treynor Ratio would be (12% - 2%) / 1.5 = 6.67.
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