# Treynor Ratio

Excess return per unit of market risk (beta).

Source data: AMFI daily NAV (17,900+ schemes) + Nifty benchmark indices. Last updated: 2026-07-02. Interactive tool: https://mfpro.tigzig.com

## What is Treynor Ratio?



The Treynor Ratio measures risk-adjusted return per unit of **systematic risk** (beta),
 unlike the Sharpe Ratio which uses total risk (standard deviation). It answers: "How much excess
 return did the fund generate for each unit of market risk taken?"

 


## Formula


 
 Treynor = (R fund − R f ) / Beta

Where:
R fund = Annualized fund return (CAGR)
R f = Risk-free rate (configurable, default 5%)
Beta = Fund's beta relative to the selected benchmark
 
 


## Example



Treynor Ratio Calculation


Fund return = 15% annualized, Risk-free rate = 5%, Beta = 1.2
Treynor = (15% − 5%) / 1.2 = 10% / 1.2 = **8.33**


Compare with another fund: 12% return, Beta = 0.8
Treynor = (12% − 5%) / 0.8 = 7% / 0.8 = **8.75**
The second fund has a higher Treynor despite lower absolute return - it earned more per unit of market risk.

 
 


## How to Interpret





- **Higher is better** - more excess return per unit of systematic risk.

- Unlike Sharpe (which divides by total risk/std dev), Treynor divides by systematic risk (beta only).

- Most useful when comparing funds **within a diversified portfolio**, where unsystematic risk is diversified away and only beta matters.

- If two funds have similar Sharpe but different Treynor, the one with higher Treynor is adding more value per unit of market exposure.


 


## Important Notes





- Undefined when beta = 0 (no market sensitivity). These cases are shown as N/A.

- Negative beta produces a negative denominator - interpret with caution.

- Uses the same configurable risk-free rate (R f ) as Sharpe and Sortino (default 5%).

- Depends on the benchmark choice - changing the benchmark changes beta, which changes Treynor.

- Less meaningful for funds with low R² (beta is unreliable when the benchmark explains little of the fund's variance).

## Related metrics

More Advanced Risk methodology from the MFPRO analytics tool:

- [Value at Risk (VaR) and CVaR](/mfpro/value-at-risk-cvar)

- [Skewness and Kurtosis](/mfpro/skewness-and-kurtosis)

- [Ulcer Index](/mfpro/ulcer-index)

- [Drawdown and Recovery](/mfpro/drawdown-recovery)

- [Correlation Matrix](/mfpro/correlation-matrix)

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Source: https://www.tigzig.com/mfpro/treynor-ratio