Answer: Treynor ratio

## Explanation The **Treynor ratio** is the only portfolio performance evaluation measure among the options that is based solely on systematic risk. ### Key Differences: **Treynor Ratio:** - Uses **systematic risk (beta)** as the denominator - Formula: (Portfolio Return - Risk-Free Rate) / Beta - Only considers market risk that cannot be diversified away **Sharpe Ratio:** - Uses **total risk (standard deviation)** as the denominator - Formula: (Portfolio Return - Risk-Free Rate) / Standard Deviation - Considers both systematic and unsystematic risk ### Why B is Correct: - Systematic risk (beta) measures a portfolio's sensitivity to market movements - Treynor ratio specifically focuses on this market-related risk - It assumes investors hold well-diversified portfolios where unsystematic risk is eliminated ### Why A is Incorrect: - Sharpe ratio uses total risk, which includes both systematic and unsystematic components - It doesn't distinguish between diversifiable and non-diversifiable risk Therefore, only the Treynor ratio is exclusively based on systematic risk.

Author: Tanishq Prabhu