The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Mechanical Investing


Subject:  Re: The Best Measure for the Best Blend Date:  11/16/2007  2:10 AM
Author:  Zeelotes Number:  203947 of 263264

Treynor Index
Treynor Index -- Treynor developed the first composite measure. This measure postulates two components of risk:
*Risk resulting from unique fluctuations in markets
*Risk resulting from unique fluctuations in portfolios

In order to identify risk due to market fluctuations, Treynor introduced the Characteristic Line. This line defines the relationship between rates of return for a portfolio over time and the rates of return for an appropriate market portfolio.
Treynor noted that the Characteristic Line's slope measures the relative volatility of the portfolio's returns in relation to returns for the aggregate market -- the Portfolio's Beta.
Deviations from the Characteristic Line indicate uniqu