Sharpe Ratio Vs Treynor Ratio Explained in 4 Minutes

[@RyanOConnellCFA]

🎓 Tutor With Me: 1-On-1 Video Call Sessions Available ► Join me for personalized finance tutoring tailored to your goals: ryanoconnellfinance.com/finance-tutoring/

[@makaknowsmoney]

This was so beautifully explained. Subscribing now.

[@RyanOConnellCFA]

Much appreciated!

[@mamadoubarry3743]

I know that risk free rates are usually based off of 10 year treasury bond yields but I wanted to know why you used 3% as your Rf rate

[@RyanOConnellCFA]

Yes, that sounds right that usually people use the 10 year Treasury Note rate. I just pulled that 3% out of no where to be completely honest haha

[@OfficialDotaPlayer]

Hello, great video. One question that is stuck with me. The systematic risk is b of the protfolio * variance of the stock market. Why isnt the denominator that and it is only the b? thanks

[@RyanOConnellCFA]

Hello! Good question. The Treynor Ratio is designed to measure the excess return per unit of systematic risk. It uses beta (β) as a measure of systematic risk because beta captures the sensitivity of the portfolio's returns to market movements. Using only beta as the denominator simplifies the interpretation of the ratio, as it directly compares the excess return of the portfolio to its sensitivity to market fluctuations. Including the variance of the market in the denominator would make the ratio harder to interpret and dilute the focus on systematic risk. I hope this clears up your confusion!

[@adamwilliams5372]

Great video well explained found this very helpful with minimal waffle. Much appreciated thanks

[@RyanOConnellCFA]

Glad it was helpful, thank you for the feedback!

[@manishkotecha9476]

Great explanation thx. How would you simulate the fair value of an option today that will only vest if a certain share price is achieved in the future

[@RyanOConnellCFA]

Hello Manish! I may make a video on this topic in the future. To simulate the fair value of a vesting-contingent option, use the Monte Carlo simulation method. Gather stock data, define option characteristics, and set the target share price. Generate random future price paths, calculate payoffs for each scenario, and discount the payoffs using a risk-free rate. Finally, average the discounted payoffs to estimate the option's fair value. This approach accounts for market uncertainties and is suitable for valuing complex options.

[@lashayz6184]

Great video, thanks! Investments quiz tomorrow *_*

[@RyanOConnellCFA]

Good luck with the quiz!

[@laurak9246]

This was well explained, thank you :)

[@RyanOConnellCFA]

You're very welcome!

[@albreiki5725]

Thanks a million

[@RyanOConnellCFA]

My pleasure!

[@moonlixht9]

Is Traynor the same as Taylor’s?

[@RyanOConnellCFA]

Are you referring to the Taylor Rule in economics?

[@bretsteinmann2787]

I fell asleep during this video. Do you have any advice on how to stay awake during such a boring video?

[@RyanOConnellCFA]

Lol this comment irked me until I noticed you were writing it Bret! We need to catch up on the phone soon

[@bringsanitytodiscussions498]

I don’t think standard deviation is in percent

[@RyanOConnellCFA]

It's just a number, you can put it in decimal form or percentage form. It doesn't matter one way or the other