NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Performance Measurement and Evaluation of Portfolio Managers
Which of the following measures uses beta rather than standard deviation as its measure of risk?
The Treynor ratio uses beta as its risk measure. It divides the portfolio's excess return over the risk-free rate by beta, so it reflects only systematic market risk, unlike the Sharpe ratio, which uses total risk measured by standard deviation.
- ATreynor ratioCorrect
- BSharpe ratio
- CCoefficient of variation
- DRange of returns
Explanation
The Treynor ratio is excess return over the risk-free rate divided by beta, so it considers only systematic risk. The Sharpe ratio divides by standard deviation, which is total risk. The other two options are not beta-based measures.
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