Treynor ratio
Excess return over the risk-free rate per unit of beta rather than per unit of volatility.
Formula
Treynor = (Return − Risk-free rate) ÷ Beta
How to read it
Higher is better. Useful for a portfolio that is one part of a larger, diversified whole, where only market risk is left.
How to use it
Judges a holding that is one part of a larger, diversified whole, where only its market risk still matters.
Limitations
Meaningless when beta is near zero or negative.
In Kereon
Portfolio. Annualized mean daily return less the risk-free rate you set, ÷ the portfolio's beta to the chosen benchmark.
Also called: treynor, treynor ratio.