The Sharpe and Treynor Measures tend to be consistent in their ranking of portfolios when the portfolios:
A)are poorly diversified.
B)are properly diversified.
C)contain only U.S. equity investments.
D)none of the above

Question

Quizplus · Accepted Answer

The Sharpe and Treynor Measures are both risk-adjusted performance measures that evaluate a portfolio's excess return relative to its risk. Both measures take into account the portfolio's systematic (market) risk as well as its unsystematic (unique) risk. When the portfolios are properly diversified, both measures tend to be consistent in their ranking of portfolios because a well-diversified portfolio has lower unsystematic risk, which is not rewarded by the market. This means that a portfolio with a higher Sharpe or Treynor ratio outperforms other portfolios with lower ratios, regardless of their specific holdings.

The Sharpe and Treynor Measures Tend to Be Consistent in Their