What value indicates a favorable investment according to the Treynor Ratio?

The Treynor Ratio is a measure of the risk-adjusted return of an investment, using systematic risk as captured by beta. A higher Treynor Ratio indicates that an investor is receiving a better return for the amount of risk taken. The formula for the Treynor Ratio is:

Treynor Ratio = (Portfolio Return - Risk-Free Rate) / Beta

In this context, a value greater than 0 signifies that the investment is providing a return that exceeds the risk-free rate on a per-unit risk basis. This suggests that an investor is being rewarded for the risk associated with holding the investment, making it a favorable investment option.

A value less than 0 indicates that the investment's return is less than the risk-free rate, which would be unfavorable as it shows the asset is providing insufficient compensation for the risk taken. A value of exactly 1 would not inherently signify a favorable investment, as it depends on the context of other investments. Therefore, having a Treynor Ratio greater than 0 is recognized as indicative of a positive investment evaluation.