Treynor Ratio Explained: Beta-Based Risk & Calculator

What is the Treynor Ratio?

Treynor ratio measures excess return per unit of market risk. Instead of total volatility (like the Sharpe ratio), Treynor uses beta, which captures how sensitive an asset is to broad market moves.

Treynor is most useful when you assume the investor already holds a diversified portfolio and only cares about systematic risk (market risk), not asset-specific volatility.

Treynor ratio calculator

How to interpret Treynor ratio

• Higher is better: it means more excess return per unit of market risk.
• Negative values mean the asset underperformed the risk-free rate.
• It is most meaningful when assets are compared against the same benchmark and time window.

Treynor vs Sharpe

Treynor and Sharpe both measure risk-adjusted return, but they use different definitions of risk:

• Treynor: market risk only (beta vs a benchmark like the S&P 500).
• Sharpe: total volatility (all price swings).
• When Treynor is better: diversified portfolios where market risk is the primary concern.
• When Sharpe is better: concentrated or single-asset exposure where idiosyncratic volatility matters.

How we calculate Treynor at Gale Finance

We compute beta against the S&P 500 (SPY) using shared trading dates, then annualize the asset's average daily return over that same set of dates. The risk-free rate is the average 3-month Treasury rate over the window.

If you want a metric based on total volatility instead of market beta, use the Sharpe ratio.