Question

# A portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation...

A portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation of 19%. The market index return is 12% and has a standard deviation of 16%. What is the Sharpe measure of the portfolio and what is the Treynor measure of the portfolio if the risk-free rate is 6%? Explain the similarities and differences between the Sharpe ratio and Treynor measure. Also, explain the most appropriate application for each.

Paragraph

Similarity between Sharpe ratio and Treynor ratio is that both measures tells us excess return per unit risk provided by portfolio

And the difference between both is that Sharpe measure use risk as standard deviation while Treynor measure use risk as beta .Standard deviation represent total risk while beta represents systematic or market risk .

Treynor measure is applied when we have well diversified portfolio because In case of well diversified portfolio,only Systematic risk is relevant While Sharpe measure is applied when portfolio is not well diversified and then total risk is required to be considered which is represented by standard deviation

#### Earn Coins

Coins can be redeemed for fabulous gifts.