Which investment has a lower preference based on its Treynor Ratio?

The Treynor Ratio is a measure of risk-adjusted return that evaluates the performance of an investment relative to its systematic risk, represented by beta. A higher Treynor Ratio indicates that an investment has provided better returns for each unit of market risk taken. Therefore, when comparing two investments, the one with the lower Treynor Ratio is less preferred because it suggests a lower return for the level of risk involved.

If investment #2 has a lower Treynor Ratio than investment #1, it signifies that investment #2 is yielding less return per unit of systemic risk compared to investment #1. This lower performance makes investment #2 less attractive to investors who seek to maximize returns, given the level of risk they are willing to take on. Thus, selecting investment #2 as the one with lower preference aligns with the goal of choosing investments that offer better risk-adjusted returns.