Treynor ratio

The Treynor ratio equals a portfolio's excess return above the risk-free rate divided by its beta, measuring return per unit of systematic risk.

ByHoang TruongUpdated July 3, 2026

FrameworkRisk-adjusted performance

See it move

Loading infographic...

A fund earning 10% when the risk-free rate is 3% and its beta is 0.8 produces a Treynor ratio of (10% − 3%) ÷ 0.8 = 8.75%. The ratio measures return per unit of systematic risk, appropriate when the fund sits inside a broader diversified portfolio.

Where it fits

TopicRisk, Return & the CAPMAdvancedSubjectCorporate FinanceAdvanced

The formula

LaTeX

T = \frac{R_p - R_f}{\beta_p}

Variables

$R_{p}$: portfolio return over the measurement period
$R_{f}$: risk-free rate over the same period
$β_{p}$: portfolio beta: systematic risk relative to the market portfolio

Appropriate when the fund is held as one component within a broader diversified portfolio, where unsystematic risk has already been eliminated. Compare with the Sharpe ratio, which penalises total standard deviation and suits a stand-alone fund.

Check yourself

PracticeCORE

Portfolio P earns 11 per cent and Portfolio Q earns 13 per cent over the same period. The risk-free rate is 4 per cent. Portfolio P has a beta of 0.7 and Portfolio Q has a beta of 1.4. Both are held as components within a larger diversified portfolio. Which portfolio delivered the superior risk-adjusted return?

Select an answer to check your understanding.