The Treynor Ratio is one more number to help you understand the risk-adjusted returns of an investment 📊

💡 Treynor Ratio = (investment return ➖ risk free rate) ➗ investment Beta

So it's just like the Sharpe or Sortino Ratios, except you divide by the Beta of the investment.

💡 Beta = how closely a stock changes with the rest of the market 🎢

A higher Beta means higher risk, as the investment might have larger ups and downs. 📈📉

Let's say Tesla stock had a 20% return in the last year 🚘

The risk-free rate was 4% ⚡

And Tesla's Beta was 2.5 🚗

Then, you can plug in these numbers into the formula: (20% ➖4%) ➗ 2.5 = 0.064 🧮

So, Tesla's Treynor Ratio is 0.064 👏

Let's say Ford's return in the last year was 6%, but its Treynor Ratio is 0.12 🛻

Then, even though Ford had a lower return, it had a better risk-adjusted return than Tesla 🏆

Lastly, just remember that a higher Sharpe, Sortino or Treynor Ratio doesn't necessarily mean a 'better' investment 🤔

These numbers are all based on past data, and the future could always look different 🌅