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Calculate the Treynor ratio to measure risk-adjusted return per unit of market risk.
Use Treynor when comparing well-diversified portfolios where unsystematic risk is irrelevant, such as evaluating mutual fund managers.
Higher is better. Compare it to the market's Treynor ratio (Rm − Rf)/1 = market excess return. Portfolios above this outperformed on a risk-adjusted basis.
Beta measures only systematic risk. For a diversified investor, only systematic risk is priced; unsystematic risk is diversified away.