What is the Treynor Ratio?
Sharpe Ratio divides excess return by total volatility (standard deviation) - it counts every source of risk equally. Treynor Ratio instead divides by beta, the fund’s sensitivity to overall market moves. That makes it a measure of return per unit of systematic risk - the risk that comes from being in the market at all, which diversification can’t remove - rather than the fund’s total risk, some of which (stock-specific risk) a well-diversified portfolio should have already reduced.
Treynor = (Rp − Rf) / βp
Higher is better - more return earned per unit of market risk taken.
Real comparison across 6 funds
CHART
3Y Treynor Ratio - 6 real funds
Same 3-year window as the Sharpe/Sortino comparisons - denominator is beta here, not standard deviation.
Funds compared: Parag Parikh Flexi Cap · DSP Value · ICICI Prudential Value · SBI Focused · Parag Parikh ELSS Tax Saver · SBI Multicap
Reading the spread
Across these 6 funds, Treynor ratio runs from 2.56 (Parag Parikh ELSS Tax Saver) to 13.70 (DSP Value), a gap of 11.14. The middle value is 8.36, with 3 of 6 above it. The highest reading is 5.4 times the lowest, so the choice of fund changes this number a lot. Taking higher as better, DSP Value leads and Parag Parikh ELSS Tax Saver trails on this measure alone.
How to use it in practice
Treynor measures return earned per unit of market risk (beta), where Sharpe measures it per unit of total volatility. Use it to compare funds that will be one part of a larger, already diversified portfolio, since in that case market risk is what you cannot diversify away. A higher Treynor means more excess return for each unit of beta taken on.
Common mistakes
Treynor depends on beta, so it inherits beta’s problems: a poor or mismatched benchmark gives a misleading figure, and a very low beta can inflate the ratio. It also ignores risk that is specific to the fund. For a standalone holding, Sharpe is usually the better lens; keep Treynor for comparing funds within the same category and benchmark.
Frequently asked questions
How is the Treynor Ratio calculated?
It divides the fund’s excess return over the risk-free rate by its beta, so it expresses return per unit of market risk.
What is the difference between Treynor and Sharpe?
Treynor uses beta, which is market risk only, while Sharpe uses standard deviation, which is total risk. Treynor is better for a fund that is one part of a diversified portfolio.
Can Treynor be misleading?
Yes. A fund with a very low or even negative beta can produce an extreme ratio. It should only be compared among funds with similar benchmarks and similar beta.
WHAT THIS MEANS FOR YOU Treynor only makes sense as a comparison across well-diversified funds, since it assumes stock-specific risk has already been diversified away - for a concentrated or sector fund, Sharpe or Sortino (which count total volatility) are the more honest measure.
METHODOLOGY Computed over a trailing 3-year window as of 2026-08-31, using each fund’s beta against its own benchmark. Data: Punji risk analytics. Not investment advice.