The Treynor ratio measures the relationship between a portfolio’s excess return relative to the portfolio’s risk-free activities (typically the return of the BOT in Italy) and beta (i.e. the systematic risk component). Unlike the Sharpe ratio, it relates to Systematic Risk and not to overall risk, which indicates the fund manager's ability to achieve perfect diversification.
The higher the Treynor ratio, the more attractive the corresponding investment, which is therefore able to better “reward” exposure to Systematic Risk than an investment with a lower Treynor ratio.
The Treynor ratio was named after the economist Jack Treynor, who perfected this indicator in 1965.
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