ฮฒ Systematic Risk Reward
Treynor Ratio Calculator
Measure Return per Unit of Market Risk (Beta)
The Treynor Ratio shows how much excess return a fund earns for each unit of systematic (market) risk it takes. Ideal for comparing diversified funds โ it isolates market sensitivity and rewards managers who generate returns efficiently per unit of beta.
Treynor RatioBeta ฮฒSharpe Comparison
SML ChartMulti-Fund RankJensen's Alpha
PRESETS:
Treynor Ratio โ Single Fund
Portfolio / Fund Return (Rp)
Annualised CAGR delivered by the fund
%
-20%+50%
Risk-Free Rate (Rf)
10-yr G-Sec / T-Bill rate
%
0%20%
Beta (ฮฒ)
Fund's sensitivity to market moves (from factsheet)
ฮฒ
0.013.0
For Comparison Ratios
Portfolio Std Dev (ฯp)
Annual volatility โ for Sharpe & Alpha
%
0.1%60%
Market Return (Rm)
Nifty 50 CAGR over the same period
%
-20%+50%
Risk-Free Rate (Rf)
Applied to all funds
%
Fund Data
FundReturn%Betaฯp%Treynor
Risk-Free Rate (Rf)
Y-intercept of the Security Market Line
%
0%20%
Market Return (Rm)
SML slope = Rm โ Rf (market premium)
%
-20%+50%
Your Fund Return (Rp)
Actual return โ plotted on SML
%
-20%+50%
Your Fund Beta (ฮฒ)
X-axis position on SML
ฮฒ
0.013.0
Portfolio Std Dev (ฯp)
For Sharpe ratio comparison
%
Treynor Analysis
ฮฒ
Treynor Ratio
โ
โ
Sharpe Ratio
โ
total risk
Jensen's Alpha
โ
excess return
Beta (ฮฒ)
โ
market risk
Excess Return
โ
Rp โ Rf
๐ Risk-Adjusted Performance Gauges
Treynor Ratio
โ
โ
Market Treynor
โ
benchmark
Treynor Premium
โ
vs market
Assessment
โ
โ
Security Market Line (SML) โ Fund vs CAPM
SML (CAPM)
Your Fund
Market (ฮฒ=1)
๐ Full Metrics Breakdown
What is the Treynor Ratio?
The Treynor Ratio measures how much excess return (above the risk-free rate) a fund generates per unit of systematic (market) risk, represented by beta. Named after Jack Treynor, it is particularly valuable for evaluating funds that are part of a larger diversified portfolio โ because in that context, unsystematic (stock-specific) risk is already eliminated through diversification, and only beta matters.
Unlike the Sharpe Ratio which uses total risk (standard deviation), the Treynor Ratio uses only beta โ meaning a fund with the same return but lower market sensitivity will rank higher. This makes Treynor ideal when comparing diversified mutual funds against each other or against their benchmark.
Treynor Ratio = (Rp โ Rf) รท ฮฒ
Market Treynor = (Rm โ Rf) รท 1.0 = Rm โ Rf
Treynor Premium = Portfolio Treynor โ Market Treynor
Jensen's Alpha = Rp โ [Rf + ฮฒ ร (Rm โ Rf)] ย ย (related metric)
Where: Rp = Portfolio Return ย ยทย Rf = Risk-Free Rate ย ยทย ฮฒ = Beta
Market Treynor = (Rm โ Rf) รท 1.0 = Rm โ Rf
Treynor Premium = Portfolio Treynor โ Market Treynor
Jensen's Alpha = Rp โ [Rf + ฮฒ ร (Rm โ Rf)] ย ย (related metric)
Where: Rp = Portfolio Return ย ยทย Rf = Risk-Free Rate ย ยทย ฮฒ = Beta
Treynor Ratio vs Sharpe Ratio โ When to Use Which
| Aspect | Treynor Ratio | Sharpe Ratio |
|---|---|---|
| Risk used | Systematic only (ฮฒ) | Total (ฯp) |
| Best for | Part of a diversified portfolio | Standalone fund evaluation |
| Penalises | High-beta funds only | Any volatility (upside & downside) |
| Benchmark | Market Treynor = Rm โ Rf | No universal benchmark |
| Diversification assumed | Yes โ idiosyncratic risk ignored | No โ all risk counts |
| Used by | Portfolio managers, asset allocators | Individual fund selectors |
Typical Treynor Ratios for Indian Funds
| Fund Category | Typical Treynor | Beta | Interpretation |
|---|---|---|---|
| Large-Cap Active | 8โ12 | 0.9โ1.0 | Modest outperformance of market Treynor |
| Mid-Cap Fund | 12โ18 | 0.95โ1.1 | Good โ higher excess return per beta |
| Small-Cap Fund | 10โ16 | 1.1โ1.4 | High return but high beta dilutes Treynor |
| Hybrid / Balanced | 10โ14 | 0.6โ0.8 | Good โ lower beta boosts Treynor |
| Index Fund (Nifty 50) | ~5 (= RmโRf) | ~1.0 | Benchmark โ beat this to add value |
| Debt / Liquid Fund | Varies widely | 0.0โ0.2 | Very low beta makes comparison tricky |
Frequently Asked Questions
What is a good Treynor Ratio for an Indian mutual fund?โผ
The market Treynor Ratio equals Rm โ Rf. With Nifty 50 returning ~12% and the risk-free rate at ~7%, the market Treynor is approximately 5. Any fund with a Treynor above 5 is outperforming the market on a risk-adjusted basis. Large-cap funds typically achieve 8โ12, while strong mid-cap funds reach 12โ18. The higher the Treynor, the better the return earned per unit of market risk taken.
Why can Treynor and Sharpe rank funds differently?โผ
They can rank funds differently because they measure different types of risk. A focused (concentrated) fund may have high stock-specific volatility (high sigma) but low beta โ Sharpe would penalise it while Treynor would reward it. Conversely, a well-diversified fund tracking the market closely has sigma โ beta ร market sigma, so both ratios tend to agree. When Treynor and Sharpe rankings diverge significantly, it signals that the fund has substantial unsystematic risk from concentration.
Can the Treynor Ratio be negative?โผ
Yes, in two scenarios: (1) The fund return is below the risk-free rate โ meaning you'd have been better off in government bonds. (2) The fund has negative beta โ meaning it moves opposite to the market (rare; some gold funds or short-selling strategies can have negative beta). When beta is negative, the Treynor formula becomes meaningless because a negative denominator flips the sign. For funds with very low or negative beta (like liquid funds), use Sharpe Ratio instead of Treynor.
How is the Security Market Line (SML) related to Treynor?โผ
The SML is the graphical representation of CAPM: it plots expected return (Y-axis) against beta (X-axis). The slope of the SML equals the market risk premium (Rm โ Rf). A fund plotted above the SML has positive alpha โ it earns more than CAPM predicts for its beta level. The Treynor Ratio is essentially the slope of a line from the risk-free point (0, Rf) to the fund's point (beta, Rp) on the SML chart. A steeper line means a higher Treynor Ratio.
Should I use Treynor or Sharpe when selecting mutual funds?โผ
Use Treynor when you already hold other funds and are adding another to a diversified portfolio โ because idiosyncratic risk of the new fund will be diversified away. Use Sharpe when you're evaluating a single fund in isolation (e.g., it will be your only equity investment). In practice, professional investors use both alongside Jensen's Alpha and Information Ratio to get a complete picture. A fund excelling on all four metrics is genuinely adding risk-adjusted value.
ฮฒ Systematic Risk Reward
Treynor Ratio Calculator
Measure Return per Unit of Market Risk (Beta)
The Treynor Ratio shows how much excess return a fund earns for each unit of systematic (market) risk it takes. Ideal for comparing diversified funds โ it isolates market sensitivity and rewards managers who generate returns efficiently per unit of beta.
Treynor RatioBeta ฮฒSharpe Comparison
SML ChartMulti-Fund RankJensen's Alpha
PRESETS:
Treynor Ratio โ Single Fund
Portfolio / Fund Return (Rp)
Annualised CAGR delivered by the fund
%
-20%+50%
Risk-Free Rate (Rf)
10-yr G-Sec / T-Bill rate
%
0%20%
Beta (ฮฒ)
Fund's sensitivity to market moves (from factsheet)
ฮฒ
0.013.0
For Comparison Ratios
Portfolio Std Dev (ฯp)
Annual volatility โ for Sharpe & Alpha
%
0.1%60%
Market Return (Rm)
Nifty 50 CAGR over the same period
%
-20%+50%
Risk-Free Rate (Rf)
Applied to all funds
%
Fund Data
FundReturn%Betaฯp%Treynor
Risk-Free Rate (Rf)
Y-intercept of the Security Market Line
%
0%20%
Market Return (Rm)
SML slope = Rm โ Rf (market premium)
%
-20%+50%
Your Fund Return (Rp)
Actual return โ plotted on SML
%
-20%+50%
Your Fund Beta (ฮฒ)
X-axis position on SML
ฮฒ
0.013.0
Portfolio Std Dev (ฯp)
For Sharpe ratio comparison
%
Treynor Analysis
ฮฒ
Treynor Ratio
โ
โ
Sharpe Ratio
โ
total risk
Jensen's Alpha
โ
excess return
Beta (ฮฒ)
โ
market risk
Excess Return
โ
Rp โ Rf
๐ Risk-Adjusted Performance Gauges
Treynor Ratio
โ
โ
Market Treynor
โ
benchmark
Treynor Premium
โ
vs market
Assessment
โ
โ
Security Market Line (SML) โ Fund vs CAPM
SML (CAPM)
Your Fund
Market (ฮฒ=1)
๐ Full Metrics Breakdown
What is the Treynor Ratio?
The Treynor Ratio measures how much excess return (above the risk-free rate) a fund generates per unit of systematic (market) risk, represented by beta. Named after Jack Treynor, it is particularly valuable for evaluating funds that are part of a larger diversified portfolio โ because in that context, unsystematic (stock-specific) risk is already eliminated through diversification, and only beta matters.
Unlike the Sharpe Ratio which uses total risk (standard deviation), the Treynor Ratio uses only beta โ meaning a fund with the same return but lower market sensitivity will rank higher. This makes Treynor ideal when comparing diversified mutual funds against each other or against their benchmark.
Treynor Ratio = (Rp โ Rf) รท ฮฒ
Market Treynor = (Rm โ Rf) รท 1.0 = Rm โ Rf
Treynor Premium = Portfolio Treynor โ Market Treynor
Jensen's Alpha = Rp โ [Rf + ฮฒ ร (Rm โ Rf)] (related metric)
Where: Rp = Portfolio Return ยท Rf = Risk-Free Rate ยท ฮฒ = Beta
Market Treynor = (Rm โ Rf) รท 1.0 = Rm โ Rf
Treynor Premium = Portfolio Treynor โ Market Treynor
Jensen's Alpha = Rp โ [Rf + ฮฒ ร (Rm โ Rf)] (related metric)
Where: Rp = Portfolio Return ยท Rf = Risk-Free Rate ยท ฮฒ = Beta
Treynor Ratio vs Sharpe Ratio โ When to Use Which
| Aspect | Treynor Ratio | Sharpe Ratio |
|---|---|---|
| Risk used | Systematic only (ฮฒ) | Total (ฯp) |
| Best for | Part of a diversified portfolio | Standalone fund evaluation |
| Penalises | High-beta funds only | Any volatility (upside & downside) |
| Benchmark | Market Treynor = Rm โ Rf | No universal benchmark |
| Diversification assumed | Yes โ idiosyncratic risk ignored | No โ all risk counts |
| Used by | Portfolio managers, asset allocators | Individual fund selectors |
Typical Treynor Ratios for Indian Funds
| Fund Category | Typical Treynor | Beta | Interpretation |
|---|---|---|---|
| Large-Cap Active | 8โ12 | 0.9โ1.0 | Modest outperformance of market Treynor |
| Mid-Cap Fund | 12โ18 | 0.95โ1.1 | Good โ higher excess return per beta |
| Small-Cap Fund | 10โ16 | 1.1โ1.4 | High return but high beta dilutes Treynor |
| Hybrid / Balanced | 10โ14 | 0.6โ0.8 | Good โ lower beta boosts Treynor |
| Index Fund (Nifty 50) | ~5 (= RmโRf) | ~1.0 | Benchmark โ beat this to add value |
| Debt / Liquid Fund | Varies widely | 0.0โ0.2 | Very low beta makes comparison tricky |
Frequently Asked Questions
What is a good Treynor Ratio for an Indian mutual fund?โผ
The market Treynor Ratio equals Rm โ Rf. With Nifty 50 returning ~12% and the risk-free rate at ~7%, the market Treynor is approximately 5. Any fund with a Treynor above 5 is outperforming the market on a risk-adjusted basis. Large-cap funds typically achieve 8โ12, while strong mid-cap funds reach 12โ18. The higher the Treynor, the better the return earned per unit of market risk taken.
Why can Treynor and Sharpe rank funds differently?โผ
They can rank funds differently because they measure different types of risk. A focused (concentrated) fund may have high stock-specific volatility (high sigma) but low beta โ Sharpe would penalise it while Treynor would reward it. Conversely, a well-diversified fund tracking the market closely has sigma โ beta ร market sigma, so both ratios tend to agree. When Treynor and Sharpe rankings diverge significantly, it signals that the fund has substantial unsystematic risk from concentration.
Can the Treynor Ratio be negative?โผ
Yes, in two scenarios: (1) The fund return is below the risk-free rate โ meaning you'd have been better off in government bonds. (2) The fund has negative beta โ meaning it moves opposite to the market (rare; some gold funds or short-selling strategies can have negative beta). When beta is negative, the Treynor formula becomes meaningless because a negative denominator flips the sign. For funds with very low or negative beta (like liquid funds), use Sharpe Ratio instead of Treynor.
How is the Security Market Line (SML) related to Treynor?โผ
The SML is the graphical representation of CAPM: it plots expected return (Y-axis) against beta (X-axis). The slope of the SML equals the market risk premium (Rm โ Rf). A fund plotted above the SML has positive alpha โ it earns more than CAPM predicts for its beta level. The Treynor Ratio is essentially the slope of a line from the risk-free point (0, Rf) to the fund's point (beta, Rp) on the SML chart. A steeper line means a higher Treynor Ratio.
Should I use Treynor or Sharpe when selecting mutual funds?โผ
Use Treynor when you already hold other funds and are adding another to a diversified portfolio โ because idiosyncratic risk of the new fund will be diversified away. Use Sharpe when you're evaluating a single fund in isolation (e.g., it will be your only equity investment). In practice, professional investors use both alongside Jensen's Alpha and Information Ratio to get a complete picture. A fund excelling on all four metrics is genuinely adding risk-adjusted value.