FIN 367 Study Guide - Final Guide: Jack L. Treynor, Treynor Ratio, Sortino Ratio
Document Summary
Sharpe ratio tells us whether a portfolio"s return were the results of smart investment decision or excess risk. Sharpe ratio = (rp rf)/ sp s= standard deviation. Sharpe is a good ratio for comparison of portfolios when the portfolios are not well diversified. Treynor ratio tells us whether a portfolio"s returns were the results of smart investment decisions or excess risk. However, the excess return is divided by systematic risk not total risk. A ratio developed by jack treynor that measures returns earned in excess of that which could have been earned on a riskless investment per each unit of market risk. Treynor ratio = rp rf / bp. Is a good ratio for comparison of portfolios when the portfolios are well diversified. Jenson alpha is an absolute measure of performance against the expected return of an asset or portfolio. Alpha = actual return expected return. Alpha = actual return - [rf + (risk premium * b)]
