Assume that you are only concerned with systematic risk. Which of the following would be the...
Assume that you are only concerned with systematic risk. Which of the following would be the best measure to use to rank order funds with different betas based on their risk-return relationship with the market portfolio? (a) Sharpe ratio (b) Jensen’s alpha (c) Treynor ratio (d) Sortino ratio
Homework Answers
Systematic risk refers to the risk that cannot be diversified. So, we need to find the option that ranks the funds based on systematic risk only.
Beta (a measure of systematic risk) measures the portfolio
volatility compared to the market volatility.
Sharpe ratio uses sigma or standard deviation.
Treynor ratio measures the risk adjusted return based on systematic
risk. or beta
Hence, the correct answer is Treynor ratio.
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Assume that you are only concerned with systematic risk. Which
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