The Treynor reason set up for the first time by Jack L. Treynor 1965 (also Treynor measure or Reward ton of Volatility reason) is an financialeconomical characteristic number developing on the CAPM.

It designates the relationship of the surplus net yield to the beta factor and thus the risk premium for each unit of the received systematic risk:

T_i = \ frac {R_i - R_f} {\ beta_i}

whereby R_i represents the net yield of the Portfolios, R_f the net yield of the risk-free investment and \ beta_i the beta of the Portfolios.

If two Portfolios stand under same basic conditions to the selection, then obtains the Portfolio with the larger Treynor reason its net yield with smaller systematic risk. Contrary to the Treynor reason used those Sharpe reason the standard deviation \ sigma_i instead of the beta factor and measures thus the total risk, thus apart from the systematic risk also the unsystematical risk by unsatisfactory diversification of the Portfolios.

If one compares two Portfolios, which do not consist of titles of the same market, those should be used Sharpe reason, since the beta factor of the Treynor reason expresses the fluctuation sensitivity of a Portfolios to the respective market. The Sharpe reason can be used market-spreading, since the computation is made by the standard deviation.

Articles in category "Treynor reason"

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