Since it calculates return per unit risk, the Sharpe rate emphasizes fund performance. The Sharpe ratio uses total risk to assess the performance of each unit.
The Sharpe Ratio is thus (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 and compares it with per unit risk.
Treynor can be described as a relative fund performance measure. 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 – Ref.
Rp = Portfolio Return. Rf = 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 Model is an upgraded version of the Capital Asset Pricing Model (CAPM) which allows for asset pricing. 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. The enhanced strategy recognizes the fact that value companies tend to outperform peers. The formula uses market risk, company size, and expected book-to–market value to determine the required return on a stock.