Suppose two portfolios have the same average return and the same standard deviation of returns, but portfolio A has a higher beta than portfolio B. According to the Treynor measure, the performance of portfolio A
A) is better than the performance of portfolio B.
B) is the same as the performance of portfolio B.
C) is poorer than the performance of portfolio B.
D) cannot be measured as there are no data on the alpha of the portfolio.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

The Treynor measure evaluates the returns of a portfolio relative to its beta (market risk). A higher beta indicates higher risk. If two portfolios have the same average return but one has a higher beta, the one with the higher beta (Portfolio A) is considered to have poorer performance according to the Treynor measure because it achieves the same return with higher risk.

Suppose Two Portfolios Have the Same Average Return and the Same