Treynor Ratio Calculator
Enter your portfolio return, the risk-free rate, and your portfolio beta to calculate the Treynor Ratio - a measure of how much excess return you earned for each unit of market risk taken. You can also enter a beginning and ending portfolio value instead of a direct return percentage, and the calculator works it out for you. Results update as you type, with a full step-by-step breakdown, an interpretation of your score, and a comparison of your portfolio against common benchmark reference points.
Formula
Worked example
A portfolio returned 10% over the year. The risk-free rate was 3.5% and the portfolio beta was 1.1. Excess return = 10% - 3.5% = 6.5%. Treynor Ratio = 6.5% / 1.1 = 0.0591. If the market returned 8%, CAPM predicted 3.5% + 1.1 x (8% - 3.5%) = 8.45%, and Jensen's Alpha = 10% - 8.45% = +1.55%.
What is the Treynor Ratio?
The Treynor Ratio, developed by economist Jack Treynor in 1965, measures how much excess return a portfolio earns per unit of systematic market risk. "Excess return" is the portfolio return above the risk-free rate - the minimum return an investor could earn without taking any risk. "Systematic risk" is the market-wide risk captured by beta, the part of risk that cannot be diversified away. The result is sometimes called the reward-to-volatility ratio, though it measures only market risk, not total volatility. The formula is: Treynor Ratio = (Portfolio Return - Risk-Free Rate) / Portfolio Beta. A higher Treynor Ratio means you earned more excess return for each unit of market risk you accepted. This makes it a useful yardstick for comparing well-diversified portfolios or mutual funds where idiosyncratic (company-specific) risk has largely been eliminated through diversification.
How to use this calculator
Choose whether to enter your portfolio return directly as a percentage, or let the calculator derive it from a beginning and ending portfolio value. Then enter the risk-free rate - typically the annualised yield on a 10-year government bond in the relevant currency. Enter the portfolio beta, which you can usually find on fund fact sheets or platforms like Morningstar. Optionally enter the benchmark (market) return for the same period; this unlocks the CAPM expected return and Jensen's Alpha outputs, giving you a fuller picture of whether your portfolio outperformed its predicted return. All four inputs work together: the steps panel shows every stage of the calculation with your actual numbers substituted in. Use the same time horizon (annual, quarterly, etc.) for the portfolio return, risk-free rate, and benchmark return to ensure the ratio is meaningful.
Treynor Ratio vs. Sharpe Ratio - when to use each
The Treynor and Sharpe ratios both measure risk-adjusted return, but they use different definitions of risk. The Sharpe Ratio divides excess return by total volatility (standard deviation of returns), capturing both systematic and unsystematic risk. The Treynor Ratio divides by beta, capturing only systematic (market) risk. This distinction matters in practice. For a well-diversified portfolio or mutual fund, most unsystematic risk has been eliminated; what remains is almost entirely market risk, so beta is the appropriate risk denominator and the Treynor Ratio is the better comparison tool. For a concentrated portfolio, a single stock, or a fund with significant idiosyncratic bets, total volatility is more informative and the Sharpe Ratio is preferable. When comparing two funds that are both well-diversified, the Treynor Ratio ranks them by how efficiently each uses its market-risk budget. A fund with a lower beta but a higher Treynor Ratio is generating more excess return per unit of market risk than a higher-beta competitor, even if both look similar on raw return.
Jensen's Alpha and the CAPM connection
The Capital Asset Pricing Model (CAPM) predicts the return an investor should expect from a portfolio given its beta, using the formula: Expected Return = Risk-Free Rate + Beta x (Market Return - Risk-Free Rate). The market risk premium (Market Return minus Risk-Free Rate) is the extra return investors demand for holding the market portfolio instead of a risk-free asset. Jensen's Alpha is the difference between what a portfolio actually returned and what CAPM predicted. A positive alpha means the manager generated returns above and beyond what the portfolio's beta would predict - skill or genuine edge beyond just taking on market risk. A negative alpha means the portfolio underperformed its CAPM prediction, suggesting the beta alone would have delivered better results in a passive index fund. This calculator computes both the Treynor Ratio and Jensen's Alpha together because they complement each other: the Treynor Ratio tells you how much excess return you earned per unit of risk, while alpha tells you whether that performance beat the expected reward for that level of risk.
Treynor Ratio interpretation guide
| Treynor Ratio range | Interpretation | What it suggests |
|---|---|---|
| Below 0 | Negative | Portfolio underperformed the risk-free rate after adjusting for beta |
| 0.00 to 0.05 | Below average | Minimal compensation for systematic risk taken |
| 0.05 to 0.10 | Average | Broadly in line with well-diversified equity fund norms |
| 0.10 to 0.20 | Good | Above-average risk-adjusted reward per unit of beta |
| Above 0.20 | Excellent | Exceptional excess return per unit of market risk |
General interpretation ranges for the Treynor Ratio. Actual benchmarks vary by asset class, time period, and market conditions. Compare against a relevant peer group.
Frequently asked questions
What is a good Treynor Ratio?
There is no universal threshold because the ratio depends heavily on the time period, asset class, and market environment. As a rough guide, a ratio above 0.10 is generally considered good for a diversified equity portfolio, and above 0.20 is exceptional. Negative values indicate the portfolio failed to beat the risk-free rate after adjusting for beta. The ratio is most useful for relative comparisons - a fund with a Treynor Ratio of 0.08 is more attractive than a peer fund with 0.04, all else being equal.
What does a negative Treynor Ratio mean?
A negative Treynor Ratio means the portfolio's return fell below the risk-free rate after adjusting for market risk. This happens when the excess return is negative - that is, the portfolio return was lower than the risk-free rate. During severe market downturns or with a poorly performing portfolio, a negative ratio signals that investors would have been better off simply holding a risk-free asset. A negative beta combined with a negative numerator can paradoxically produce a positive ratio, so check the sign of the excess return separately.
Can I use the Treynor Ratio for individual stocks?
Technically yes, but it is less meaningful for individual stocks than for diversified portfolios. The Treynor Ratio assumes that unsystematic risk has been diversified away, so the only risk that matters is beta. A single stock carries significant company-specific risk that is not captured by beta. For individual securities, total volatility (standard deviation) is a more appropriate risk measure, making the Sharpe Ratio a better fit.
What risk-free rate should I use?
The convention is to use the yield of a short- to medium-term government bond in the same currency as the portfolio and over a matching time horizon. For US dollar portfolios, the 3-month Treasury bill rate or the 10-year Treasury bond yield are both commonly used. The 10-year yield is generally preferred for equity portfolio analysis because equity investments are long-term instruments. Make sure the risk-free rate and portfolio return cover the same measurement period.
What is beta and where do I find it?
Beta measures how sensitively a portfolio or fund moves relative to the overall market. A beta of 1.0 means the portfolio tracks the market exactly. A beta of 1.5 means it is 50% more volatile than the market (amplifying gains and losses), and 0.7 means it is 30% less volatile. You can find beta on financial data platforms such as Morningstar, Yahoo Finance, or Bloomberg, or in a fund's fact sheet. For a custom portfolio, beta is the weighted average of the individual betas of each holding.
How does the Treynor Ratio relate to Jensen's Alpha?
Both metrics are rooted in the same CAPM framework. The Treynor Ratio asks: how much excess return (above the risk-free rate) did I earn per unit of beta? Jensen's Alpha asks: how much did I earn above what CAPM would have predicted for this beta, given the market return? They answer related but different questions. A portfolio can have a high Treynor Ratio but negative alpha if it simply took on a lot of beta in a rising market. Conversely, a portfolio with low beta might show a modest Treynor Ratio but significant positive alpha if the manager added value beyond pure market exposure.