Treynor Ratio Calculator
Rewarding Return Per Unit of Market Risk
Two portfolios can post the same return while carrying very different amounts of market risk. The Treynor ratio strips that difference out by measuring excess return — return above the risk-free rate — per unit of beta, the portfolio's sensitivity to market moves. Unlike the Sharpe ratio, which divides by total volatility, Treynor isolates systematic (market) risk specifically, making it the more relevant tool for a diversified portfolio where unsystematic risk has already been diversified away.
The Formula
Rp is the portfolio's return, Rf is the risk-free rate over the same period, and Beta is the portfolio's beta relative to the market.
Where This Matters
- Comparing diversified portfolios — among portfolios that hold enough positions to have diversified away individual-stock risk, Treynor isolates who is being paid best for the market risk that remains.
- Manager evaluation — a manager running a high-beta portfolio needs a proportionally higher return just to match a lower-beta competitor's Treynor ratio; the metric adjusts for that automatically.
- Asset allocation decisions — ranking candidate portfolios by Treynor ratio rather than raw return avoids favoring a portfolio that simply took on more market risk.
| Input | Value |
|---|---|
| Portfolio return | 12% |
| Risk-free rate | 3% |
| Beta | 1.1 |
| Treynor Ratio | 8.18 |
(12% − 3%) ÷ 1.1 = 8.18. Interpreted as excess return per unit of market risk, higher values indicate better compensation for beta exposure taken.
How to Use This Calculator
- Enter the portfolio's return over the period as a percentage.
- Enter the risk-free rate over the same period (commonly a short-term Treasury yield).
- Enter the portfolio's beta.
- Select Calculate to get the Treynor ratio.
Related Calculations
See the Sortino Ratio Calculator for a downside-risk-focused alternative, or the Portfolio Beta Calculator to derive the beta input from individual holdings.