The Generalized Treynor Ratio

Abstract

This paper extends the treynor performance ratio for a single index to the case of multiple indexes. The new measure, called the generalized treynor ratio, preserves the same key geometric and analytical properties of the original treynor ratio. The generalized treynor ratio is defined as the abnormal return of a portfolio per unit of premium-weighted average systematic risk, normalized by the premium-weighted averagesystematic risk of the benchmark. Numerical simulations reveal that the portfolio rankings produced with this measure are more precise and more stable than the ones provided by jensen's alpha and the information ratio.