Treynor's performance measure implicitly assumes a completely diversified portfolio.

Question

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Treynor's performance measure evaluates the excess return earned by a portfolio per unit of systematic risk. However, this measure assumes that the portfolio is well-diversified and that unsystematic risk has been eliminated. Therefore, the measure is more appropriate for evaluating performance of highly diversified portfolios, such as mutual funds or index funds, rather than for evaluating the performance of individual stocks or poorly diversified portfolios.

Treynor's Performance Measure Implicitly Assumes a Completely Diversified Portfolio