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Treynor Ratio
Treynor Ratio is an index that measures returns per each unit of acquired risk, earned in excess of returns that could be earned in risk-free investments.
Treynor ratio is calculated in the following way:
(Average Return of the Portfolio - Average Return of the Risk-Free Rate) / Beta of the Portfolio
As you can see, Treynor ratio is calculated in similar way as the Sharpe ratio, with one difference: Sharpe ratio is using portfolio standard deviation as measurement of risk, while Treynor ratio uses Beta of the portfolio.
Treynor ratio can be a good indicator for investors to examine how returns will be affected if the portfolio is structured to different levels.
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