medium · FRM Part 2 Risk & Investment Management
A bank is evaluating two managers for a mandate. Manager X has a Sharpe ratio of 0.45 and a Treynor ratio of 6.0. Manager Y has a Sharpe ratio of 0.40 and a Treynor ratio of 8.0.
If the manager will be one of many in a well-diversified portfolio, which should be preferred and why?
- Manager X; it has lower idiosyncratic risk.
- Manager X; the Sharpe ratio is higher, indicating better overall efficiency.
- Manager Y; the Treynor ratio is superior for assets in a diversified program.
- Neither; their Information Ratios must be compared first.
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