How does the Treynor ratio compare to the Sharpe ratio when evaluating the performance of cryptocurrency portfolios?
Ali ShaikhDec 26, 2021 · 3 years ago1 answers
When it comes to evaluating the performance of cryptocurrency portfolios, how does the Treynor ratio compare to the Sharpe ratio? What are the key differences between these two metrics?
1 answers
- Dec 26, 2021 · 3 years agoWhen it comes to evaluating the performance of cryptocurrency portfolios, the Treynor ratio and the Sharpe ratio are two metrics that investors often use. The Treynor ratio measures the excess return of a portfolio per unit of systematic risk, while the Sharpe ratio measures the excess return per unit of total risk. The key difference between these two ratios is the way they account for risk. The Treynor ratio only considers the systematic risk, which is the risk associated with the overall market. On the other hand, the Sharpe ratio takes into account both systematic and unsystematic risk. To calculate the Treynor ratio, you need to know the beta of the portfolio, which measures the sensitivity of the portfolio's returns to the overall market returns. The Sharpe ratio, on the other hand, requires the standard deviation of the portfolio's returns, which measures the volatility of the portfolio. In summary, the Treynor ratio and the Sharpe ratio provide different perspectives on the risk-adjusted performance of cryptocurrency portfolios. It's important to consider both ratios when evaluating the performance of your investments.
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