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Computerized Investing > First Quarter 2013

Measuring Risk-Adjusted Performance With the Treynor Ratio

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by CI Staff

Last issue’s Fundamental Focus discussed the Sharpe ratio, a measure of return adjusted for risk. The Treynor ratio is another risk-adjusted performance figure that is very similar to the Sharpe ratio.

Both ratios measure how well an investment vehicle compensates the investor for a given level of risk. Both measure excess return above the risk-free rate per unit of risk. The main difference is that the Sharpe ratio uses standard deviation as the risk measure, whereas the Treynor ratio uses beta.

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