What are the limitations of using the Treynor formula to compare the performance of different cryptocurrencies?

1 answers

• Dec 25, 2021 · 3 years ago
  When it comes to comparing the performance of different cryptocurrencies, the Treynor formula has its limitations. One limitation is that the formula assumes that investors have a homogeneous risk preference, which may not be the case in the diverse and decentralized cryptocurrency market. Additionally, the formula does not consider the unique characteristics and underlying technology of each cryptocurrency, which can greatly impact their performance. Moreover, the formula does not account for the potential influence of market manipulation or insider trading, which can distort the performance metrics of cryptocurrencies. Therefore, while the Treynor formula can provide a rough estimate of the risk-adjusted return of cryptocurrencies, it should be used cautiously and in conjunction with other evaluation methods to get a more accurate picture of their performance.
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