What is sharpe ratio


2 Answer(s)


Thanks for your feedback Mr.Singh. It was a pleasure talking to you know on the phone. I will schedule a phone call so you can clarify your questions in detail.

Treynor ratio is a measure of returns in excess of that could be obtained in a non-risk investment (like government bonds or US Treasury notes).

Let me explain - it is generally perceived that bonds issued by financially strong governments such as the US Treasury Bills are virtually risk free since the government only has to print money to reply the loans and hence they can never default.

Now if you are an investor and you invest in anything other than a government bond then there is associated risk with it and you would like to get compensated appropriately. Treynor ratio tells you the how much return more than the government bond did your portfolio make. It is calculated as (Portfolio's Return - Risk Free Return) / Portfolios Beta

Beta indicates the volatility of the portfolio in relation to the local benchmark (which is representative of the overall local financial market).