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Audit the systematic risk. Calculate the Treynor Ratio to measure how much excess return a portfolio generates per unit of systematic risk (Beta).
Step-by-step breakdown of the underlying equations.
While the Sharpe ratio uses total risk (volatility), the **Treynor Ratio** uses market risk (Beta). This makes it ideal for evaluating well-diversified portfolios where unsystematic risk has been eliminated. A higher Treynor ratio indicates better compensation for the unavoidable market risk taken.