Calculator
Treynor Ratio Calculator
Treynor Ratio Calculator
Treynor Ratio
6.36
Return per Unit of Beta
6.36%
Market Risk Carried
β 1.10
Reward-per-Risk Analysis
A Treynor ratio of 6.36 is decent. The portfolio returned 11.5% on a beta of 1.10, which translates to 6.4% of excess return per unit of market risk. Compare that number against the market's own premium over the risk-free rate — if the index would have scored higher, a cheaper index fund would have served you better.
The Treynor ratio is a backward-looking measure based on the inputs you provide. Beta and returns vary over time, and a ratio computed on one period's numbers does not guarantee future risk-adjusted results.
The Treynor Ratio: Reward per Unit of Market Risk
Every portfolio return comes with a question: how much market risk did I take to earn it? The Treynor ratio, developed by economist Jack Treynor in the 1960s, answers exactly that by dividing a portfolio's excess return over the risk-free rate by its beta - the measure of systematic, non-diversifiable market risk. A Treynor ratio of 6 means each unit of market exposure earned six percentage points of reward above cash. It is the natural yardstick for judging a fund that lives inside an already-diversified portfolio, because beta is precisely the risk diversification cannot remove. For Australian investors comparing managed funds, super fund investment options, or individual ASX holdings, the Treynor ratio exposes a common illusion: a high-return fund is often just a high-beta fund. Two funds can both return 15%, but the one that did it at a beta of 0.9 earned its return far more efficiently than one that needed a beta of 1.5. Where the Sharpe ratio divides by total volatility and suits a whole-portfolio judgment, Treynor divides by beta and suits evaluating a single building block inside a diversified account - a satellite fund in your brokerage account or one option on your super fund's menu.
Behind the Formula: Excess Return Divided by Beta
The Treynor ratio is computed as (Portfolio Return - Risk-Free Rate) / Beta. The numerator is the reward: how much the portfolio earned above what guaranteed cash would have paid - anchored in Australia to the RBA cash rate or a short-term bank bill yield. The denominator is the systematic-risk price of earning it. Beta is a regression coefficient between the portfolio's returns and the benchmark's returns, so a beta of 1.2 means the portfolio historically moved 20% more than the S&P/ASX 200 in both directions. Because beta captures only market-linked risk, the Treynor ratio assumes the portfolio you are evaluating is part of a diversified whole - the idiosyncratic stock-picking risk left after diversification is ignored by design. That is the key modelling assumption: if the portfolio IS your entire account, beta understates your true risk, and a total-risk measure like Sharpe is more appropriate. A practical rule: compare a fund's Treynor ratio against the index's own excess return over the same window - with the market's beta of 1.0, that figure is the bar to beat. Negative numerators produce negative ratios, and zero or negative beta makes the ratio undefined, which is why the calculator guards against it.
Expert Insights
Use Treynor for a Sleeve, Sharpe for the Whole Portfolio
The two classic reward-per-risk ratios answer different questions. Treynor prices market risk (beta), which is the only risk left standing in a diversified portfolio - so it is the right lens for judging one fund inside a diversified mix, whether that is a satellite holding or an option within your super. Sharpe prices total volatility, which matters when the investment IS the portfolio. Misapplying Treynor to a concentrated, undiversified account undercounts the risk you actually hold. Match the ratio to the question.
The Index's Own Treynor Ratio Is the Bar to Beat
An easy and rigorous benchmark: compute the S&P/ASX 200's excess return over the risk-free rate for the same window - since the index's beta is 1.0, that number is the market's own Treynor ratio. Any Australian fund with a lower ratio delivered less reward per unit of market risk than simply buying the index, and you could have matched its beta far cheaper with an ETF. This single comparison settles most active-versus-passive debates on quantifiable terms.
Watch for Beta Drift Between Measurements
Beta is not a fixed property of a fund; it is a statistical estimate over a chosen window, and it drifts as the manager rotates holdings - think of how resources-heavy funds behave differently through a China slowdown. A fund whose Treynor ratio looked excellent when its beta was 0.8 may look poor today at 1.3. Always check the beta you plug in comes from a similar period as the return figure, and re-run the ratio periodically rather than trusting a stale snapshot.
Actionable Tips
- 1
Rank Your Fund Lineup by Treynor Before Rebalancing
Pull each fund's average annual return and the beta printed in its fact sheet or published by market data services, plug both into this calculator with the current RBA cash rate as the risk-free anchor, and rank the results. Bottom-ranked funds are consuming market-risk budget for the least reward. This routinely surfaces holdings - including expensive super investment options - that underdeliver relative to their volatility contribution.
- 2
Pair Treynor With a Look at Fees
Australian management fees come straight out of a fund's return, so expensive funds start the Treynor race with a handicap. If two funds post similar Treynor ratios but one charges a percent more, the cheaper manager effectively produced more pre-fee skill. Always inspect the ratio alongside cost - a small fee edge is usually more durable than a small ratio edge, and fee differences compound for decades inside super.
- 3
Re-run With a Different Risk-Free Rate to Test Sensitivity
Treynor's numerator is sensitive to the risk-free-rate assumption, and the RBA cash rate moves with every board meeting. Re-run the calculation using a rate assumption one or two points different. If a fund's rank flips between scenarios, its edge is fragile and mostly a rate artefact; if the ranking holds across reasonable assumptions, the risk-adjusted result is sturdier than any single run suggests.
Real-World Examples
Derek's Growth Fund Looks Great Until the Ratio Appears
Derek held a concentrated mining-services fund that returned 16.4% in a year the ASX 200 returned 13%. The win felt like skill until the calculator showed the fund's beta at 1.35. Its Treynor ratio came out lower than the index's own, meaning the extra return was just amplified market exposure wearing a 0.9% fee. He switched to a low-cost ASX 200 ETF, kept the same market risk, and saved the fee difference every year after.
Linda Finds Quiet Value in an A-REIT Fund
Linda's listed-property fund returned only 8.9% in a roaring equity year, and she assumed it was dragging her self-managed super fund down. The tool showed its beta was just 0.55, producing a Treynor ratio above both the index and her other holdings. Relative to the little market risk it took, the fund was her most efficient sleeve. She kept it as ballast and stopped judging it against the headline tape.
The Kowalski Super Option Audit
The Kowalskis ran the Treynor ratio across five equity investment options on their super fund's menu using each option's published unitise returns and betas. Two active options trailed the indexed option after fees, a third matched, and only one clearly beat its benchmark ratio - while carrying far higher tracking error. They consolidated into the cheap index option plus a small allocation to the fund earning its keep, trimming the fees dragging their retirement balance.
Glossary of Terms
- Treynor Ratio
- Excess return over the risk-free rate divided by beta. It measures reward earned per unit of systematic market risk.
- Risk-Free Rate
- The return of an asset treated as free of default risk - in Australia typically the RBA cash rate or a short-term bank bill yield. It is the guaranteed baseline a risky investment must beat.
- Systematic Risk
- Market-wide risk that affects all holdings and cannot be diversified away, measured by beta. It is the risk the Treynor ratio prices.
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Ivy Sinclair-Wren
Financial Chaos Analyst
Ivy Sinclair-Wren is a Financial Chaos Analyst covering investing, AI, wealth psychology, and the emotional consequences of opening finance apps during market crashes. Based in Melbourne, she specializes in demystifying the Australian tax code and helping users navigate the intersection of spreadsheet logic and human irrationality.