Treynor Ratio

Similar to Sharpe Ratio, Treynor Ratio is a measurement of efficiency utilizing the relationship between annualized risk-adjusted return and risk. Unlike Sharpe Ratio, Treynor Ratio utilizes "market" risk (beta) instead of total risk (standard deviation).  Good performance efficiency is measured by a high ratio.

4Calculation

= excess return for month t

= average geometric excess return

B = Beta of investment versus benchmark

n = periods in a year

Treynor Ratio,

Treynor Ratio Annualized,

Arithmetic Treynor Ratio is calculated similarly, except the arithmetic excess return is the numerator instead of the geometric excess return. When annualize, use multiplication for the numerator instead of compounding.