What is the Treynor Index?
The Treynor index or Treynor ratio, also referred to as the reward-to-volatility ratio, is an investment measurement index invented by Jack Treynor that indicates how much an investment that involves some level of risk has earned over a risk-less investment per unit of market risk (given in the following calculation as the beta coefficient): (Average Return of the Portfolio – Average Return of the Risk-Free Rate) / Beta coefficient The Treynor index offers a more nuanced analysis of an investment’s success over simply looking at the bottom-line financial returns on a stock. Prior to the Treynor index, stock market investors had known how to measure risk and compare returns, but it wasn’t until the advent of the Treynor index, and latterly the Sharpe and Jensen ratios, that investors were able to discern the correlations between risk and returns on their investments clearly. The Treynor index works on the notion of risk posited by Treynor in his understanding of the two-sided nature of
