The Sharpe, Treynor, and Jensen portfolio performance measures are derived from the CAPM,
A) therefore, it does not matter which measure is used to evaluate a portfolio manager.
B) however, the Sharpe and Treynor measures use different risk measures. Therefore, the measures vary as to whether or not they are appropriate, depending on the investment scenario.
C) therefore, all measure the same attributes.
D) therefore, it does not matter which measure is used to evaluate a portfolio manager. However, the Sharpe and Treynor measures use different risk measures, so therefore, the measures vary as to whether or not they are appropriate, depending on the investment scenario.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

The Sharpe, Treynor, and Jensen measures are indeed derived from the Capital Asset Pricing Model (CAPM), but they use different risk measures. The Sharpe ratio uses total risk (standard deviation of portfolio returns), while the Treynor ratio uses systematic risk (beta). This difference means that the appropriateness of each measure can vary depending on the investment scenario, such as whether the portfolio is diversified or not.

The Sharpe, Treynor, and Jensen Portfolio Performance Measures Are Derived