This software measures a portfolio’s risk-adjusted return relative to the systematic danger, represented by beta. It helps consider how a lot extra return was generated for every unit of market danger taken. For instance, a better worth suggests higher efficiency in managing danger. The calculation entails subtracting the risk-free charge of return from the portfolio’s return and dividing the consequence by the portfolio’s beta.
As a key efficiency indicator, this metric supplies worthwhile insights for funding evaluation. It permits buyers to check completely different funding choices on a risk-adjusted foundation, resulting in extra knowledgeable decision-making. Launched by Jack L. Treynor within the Sixties, this system has grow to be a broadly accepted software in finance for evaluating portfolio efficiency and guiding strategic asset allocation.