The major difference between the Sharpe ratio and the Treynor ratio is that the Sharpe ratio analyzes _________ risk and the Treynor ratio analyzes ___________ risk.
A) total; total
B) total; systematic
C) systematic; systematic
D) systematic; total
E) None of the above.

Question

Quizplus · Accepted Answer

The Sharpe ratio measures the performance of an investment compared to a risk-free asset, after adjusting for its risk (total risk, as it uses standard deviation of the portfolio returns). The Treynor ratio, on the other hand, measures returns over the risk-free rate per unit of market risk (systematic risk, as it uses beta of the portfolio).

The Major Difference Between the Sharpe Ratio and the Treynor