NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Performance Measurement and Evaluation
A portfolio's Treynor ratio is computed by dividing the portfolio's excess return over the risk-free rate by which measure?
The Treynor ratio divides the portfolio's excess return over the risk-free rate by its beta. It therefore measures reward per unit of systematic (market) risk, unlike the Sharpe ratio, which uses total risk measured by standard deviation.
- AStandard deviation of portfolio returns
- BBeta of the portfolioCorrect
- CTracking error of the portfolio
- DAlpha of the portfolio
Explanation
The Treynor ratio = (Rp - Rf) / Beta. It measures excess return per unit of systematic risk. Standard deviation is used in the Sharpe ratio, and tracking error is used in the information ratio.
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