What are Sharpe and Treynor ratios and how are they used?
The Sharpe and Treynor ratios are used to rank the performance of portfolios. They show how well your portfolio compensates you for the risk taken. When you compare two assets or two portfolios with the same expected returns against the same benchmark, the asset with the higher ratio simply gives more return for the same risk and should be preferred to the asset with low ratio. Both Sharpe and Treynor ratios are used in our five star optimization technique.
