Risk and return · updated October 21, 2026
What is the Treynor ratio and how is it calculated
The Treynor ratio shows how much return above a risk-free investment you got for each unit of beta, meaning market risk. It is useful for stocks held in a diversified portfolio, where market risk is what matters most.
The Treynor ratio formula
Treynor=Annual return − Risk-free rateBeta
- Beta
- How much the stock moves compared with the market.
Worked example
A stock returned 12% over a year, the risk-free rate is 4%, and beta is 1.2.
8%12% − 4%
1.2beta
6.7%Treynor ratio
Each unit of market risk was rewarded with 6.7 percentage points.
How to read the Treynor ratio
Negativebelow the risk-free investment
0% - 8%typical
Above 8%very well rewarded
Compared with Sharpe: Treynor looks only at market risk, Sharpe at all risk.
When the Treynor ratio can fool you
Beta close to zero: the ratio blows up and stops making sense.
Related terms
Questions about the Treynor ratio
When do I use Treynor?
When you already hold many stocks and want to know whether a new one adds return for the market risk it brings.
These explanations are for information only. They are not a recommendation to buy or sell.
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