Since it calculates return per unit risk, the Sharpe rate emphasizes fund performance. To evaluate each unit’s performance, the Sharpe rate uses the total risk.
Thus, Sharpe Ratio equals Rp – RF/.
This is the case where Portfolio Return equals.
This is the risk-free rate for return.
The standard deviation is equal to
Treynor evaluates performance of funds, and correlates return against per-unit risks.
Treynor refers to a relative fund performance indicator. Because it measures return to risk per unit, this is called a relative performance measure. Treynor, however, uses systematic risk to measure its performance.
Treynor = Rp -Rf /
Rp is Portfolio Return, Rf is Risk-Free Rate Of Return.
B = Quantification systemic risk
Alpha is the difference in the actual and predicted rate of return. This is how you can determine whether a portfolio is positive or negative. Therefore, portfolios that have the highest value are considered more desirable than others. Fama’s and French Three Factor Models are an upgraded version of the Capital Asset Pricing Model (CAPM). The Fama-French Three Factor Model, which is an enlarged version of the CAPM’s basic market risk model (CAPM), incorporates size and value risks. This enhanced approach recognizes that most value businesses outperform their peers. To predict the return required for a stock, it uses market risk and company size.