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Risk-adjusted performance ratios

RAPMs are variations of: return per unit of risk. Treynor and Sharpe are similar: both are excess return per unit of risk. Treynor defines risk as systematic risk (beta) and is therefore appropriate to well-diversified portfolios (i.e., into such portfolios idiosyncratic risk is eliminated); Sharpe defines risk as total risk (volatility). Jensen’s alpha is outperformance relative to expected performance under CAPM.
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