Which ratio is the most suitable if an analyst wants to consider how an alternative investment correlates with traditional assets in a portfolio?

A. Sharpe ratio
B. Sortino ratio
C. Treynor ratio

Correct Answer: C

The Treynor ratio measures returns earned in excess of that which could have been earned on an investment that has no diversifiable risk per unit of market risk. The correlation is built in the calculation. Both A and B use standard deviation as a risk measure.