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Basic Question 2 of 8
Which statement regarding Treynor ratio is false?
B. Portfolios with identical systematic risk but different total risk will be rated the same using Treynor ratio.
C. A portfolio with a Treynor ratio of 0.1 is 2 times better than a portfolio with a Treynor ratio of 0.05.
A. It cannot be applied to assets with negative beta.
B. Portfolios with identical systematic risk but different total risk will be rated the same using Treynor ratio.
C. A portfolio with a Treynor ratio of 0.1 is 2 times better than a portfolio with a Treynor ratio of 0.05.
User Contributed Comments 6
| User | Comment |
|---|---|
| johntan1979 | Not sure if I understand C... ranking does not denote significance? Surely a portfolio ranked #1 is better than another one ranked #100? |
| jonan203 | c is probably false because it is an ordinal measurement of comparative portfolios |
| gill15 | Ìt`s a ranking. Doesnt mean Twice as good --- just better. |
| Marinov | By the way, Treynor just passed away |
| ksarmand | Why can the Treynor ratio not be applied to assets with negative beta? |
| sshetty2 | I don't think they are saying that two portfolios with different total risk will be ranked differently. I think they are saying that the Treynor ratio will literally be identical. Looking at the formula, unsystematic risk is not part if it ie. the denominator is beta which is a measure of volatility based on relative systematic volatility only. |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
calculate and interpret the Sharpe ratio, Treynor ratio, M2, and Jensen's alpha
CFA® 2025 Level I Curriculum, Volume 2, Module 2.