- CFA Exams
- CFA Level I Exam
- Study Session 18. Portfolio Management (1)
- Reading 53. Portfolio Risk and Return: Part II
- Subject 4. Applications of the CAPM

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**CFA Practice Question**

Which statement is true?

A. A portfolio with a Sharpe ratio of 0.8 is 2 times better than a portfolio with a Sharpe ratio of 0.4.

B. Treynor ratio can be used to rank portfolios.

C. A portfolio with an M-square of 1 matches the performance of the market.

**Explanation:**A is false. Sharpe ratio can be used to rank portfolios but does not give any information about the economic significance of differences.

B is true. Treynor ratio can be used to rank portfolios with positive beta.

C is false. If M-squared is positive it means the portfolio outperforms the market.

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