Measure of systematic risk -> as indicated by Beta
Treynor ratio is the slope of SML > 0
M^2
Rf + Std Dev.m [Erp -Rf / Std dev.p]
Is the sharpe ratio adjusted to to measure the value add/lost of taking the same risk as the “market” -> creates a like-for-like comaprision across differenent managers. Total risk measure
Is the slope of the CAL if > CML (not sure if this is right?)
M2 measures a hypothetical portfolio if they lend at Rf to increase risk and return if the portfolio has less risk than the market, so it should end up being at a point better than CML if that is the case, and is equating it to the total risk in the market to see what the perf would have been. If it’s better then M2 is superior (and Sharpe is as well).
The Sharpe is the slope of the CAL. The M^2 is the point above the CAL directly above the market portfolio as the M^2 is merely the return if the portfolio would have had the std dev of the market.