Treynor Ratio Calculator
Measure a portfolio's excess return per unit of market (systematic) risk, using beta instead of total volatility. Best for judging well-diversified portfolios.
Last updated: May 2026
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About this calculator
The Treynor ratio measures how much excess return a portfolio earns for each unit of systematic (market) risk it carries. The formula is Treynor = (Rp − Rf) / β, where Rp is the Portfolio Return, Rf is the Risk-Free Rate, and β (beta) is the portfolio's sensitivity to overall market movements. A beta of 1 means the portfolio moves in line with the market; 1.2 means it is 20% more volatile than the market; 0.8 means 20% less. The ratio is closely related to the Sharpe ratio, but where Sharpe divides excess return by total volatility (standard deviation), Treynor divides by beta, counting only the market risk that cannot be diversified away. This makes Treynor most appropriate for evaluating a well-diversified portfolio or a fund held as part of a larger portfolio, where idiosyncratic risk has already been removed and only systematic risk remains relevant. A higher Treynor ratio is better: more reward per unit of market exposure. Edge cases: a portfolio with beta near zero produces an extremely large or undefined ratio, and a negative beta (rare, e.g. some hedges) flips the sign and makes interpretation tricky. Because beta is estimated from historical data against a chosen benchmark, the ratio is only as reliable as that estimate, and comparisons are valid only against the same benchmark and period.
How to use
Example 1 — a fund returning 12% with a 2% risk-free rate and a beta of 1.2. Enter Portfolio Return = 12, Risk-Free Rate = 2, Portfolio Beta = 1.2. Treynor = (12 − 2) / 1.2 = 8.33. Verify: the fund delivered 8.33 percentage points of excess return per unit of market risk — you would compare this to another fund's Treynor ratio to see which rewarded market risk more efficiently. Example 2 — a defensive fund returning 9% with the same 2% risk-free rate but a beta of 0.7. Enter 9, 2, 0.7. Treynor = (9 − 2) / 0.7 = 10.00. Verify: despite a lower raw return, the defensive fund has a higher Treynor ratio because it generated its excess return while taking far less market risk — the comparison the metric is built to reveal.
Frequently asked questions
What is the difference between the Treynor and Sharpe ratios?
Both measure excess return per unit of risk, but they use different risk denominators. The Sharpe ratio divides by total standard deviation, capturing all volatility — both market-driven and security-specific. The Treynor ratio divides by beta, capturing only systematic (market) risk. As a result, Treynor is the better measure for a fully diversified portfolio, where unsystematic risk has been eliminated and only market risk matters, while Sharpe is better for evaluating a standalone or undiversified investment. If two funds have similar Sharpe ratios but very different Treynor ratios, it usually reflects differences in how diversified they are. Use the metric that matches whether the holding is part of a broader portfolio.
What is beta and where do I get it?
Beta measures how sensitive an investment is to movements in the overall market: it is the slope of a regression of the investment's returns against a benchmark index's returns. A beta of 1 moves with the market, above 1 amplifies market moves, and below 1 dampens them. You can find beta on most financial data sites (it is a standard quoted statistic for stocks and funds), or calculate it yourself from historical returns. Be aware that beta depends on the benchmark and time window chosen, so two sources can report slightly different values. Because the Treynor ratio hinges entirely on beta, an unreliable beta makes the ratio unreliable too.
When should I NOT use the Treynor ratio?
Avoid it for undiversified portfolios or single securities, where a large part of total risk is security-specific and beta captures only part of the picture — the Sharpe ratio is more honest there. It is also unreliable when beta is very close to zero (the ratio explodes) or negative (the sign becomes hard to interpret). Because beta is estimated from history against a specific benchmark, the ratio is only valid when comparing funds measured against the same benchmark over the same period. Do not treat it as forward-looking; past beta and past returns may not persist. And like all single-number metrics, it should be read alongside absolute returns, drawdowns, and the quality of the beta estimate.
What counts as a good Treynor ratio?
There is no universal threshold — the Treynor ratio is only meaningful in comparison, so a 'good' value is simply one higher than that of a relevant benchmark or competing fund measured the same way. A higher ratio means the portfolio earned more excess return per unit of market risk. Because the denominator is beta rather than a percentage volatility, the scale differs from the Sharpe ratio and the two should never be compared directly. Always rank funds by Treynor only when they share the same benchmark and measurement window. In isolation the number tells you little; in a like-for-like comparison it tells you which manager used market risk most efficiently.
How does the risk-free rate affect the result?
The risk-free rate sets the baseline the portfolio must beat, so raising it shrinks the excess-return numerator and lowers the Treynor ratio, while lowering it does the opposite. Analysts typically use the yield on a short-term government security, such as a 3-month Treasury bill, matched to the measurement period. Using an inconsistent or stale risk-free rate is a common error that makes cross-fund comparisons invalid. Because all the ratios you compare should share the same risk-free rate, pick one appropriate to the period and apply it uniformly. In low-rate environments the choice matters less; when rates are high it can materially change the ranking.