FINANCIAL CALCULATORS
Information Ratio Calculator
Calculate a portfolio manager’s active return relative to benchmark tracking risk.
What is the Information Ratio Calculator & How does it work?
The Information Ratio is a performance metric used to measure the excess returns generated by a portfolio manager, relative to the returns of a benchmark index. It quantifies how much excess return is produced for each unit of deviation in returns from the benchmark.
To calculate the Information Ratio, you need two key pieces of information: the active return (the difference between the portfolio’s return and the benchmark’s return) and the tracking error (the standard deviation of the difference between the portfolio’s returns and the benchmark’s returns).
To calculate the Information Ratio, you need two key pieces of information: the active return (the difference between the portfolio’s return and the benchmark’s return) and the tracking error (the standard deviation of the difference between the portfolio’s returns and the benchmark’s returns).
text{Information Ratio} = frac{text{Active Return}}{text{Tracking Error}}
var = meaning
Parameters
Result—
Frequently Asked Questions
What is the Information Ratio?
The Information Ratio measures how much excess return a portfolio generates for each unit of deviation from its benchmark.
How do I calculate active return?
Active return is calculated by subtracting the benchmark's return from the portfolio's return.
What does tracking error represent?
Tracking error is the standard deviation of the difference between the portfolio's returns and the benchmark's returns.
Why is the Information Ratio important?
The Information Ratio helps assess a portfolio manager's skill in generating excess returns relative to market benchmarks.
Can I use any benchmark index for this calculation?
Yes, you can use any relevant benchmark index that matches your portfolio's asset class and time period.
How often should I calculate the Information Ratio?
It's typically calculated monthly or quarterly to monitor performance over time.
What does a high Information Ratio indicate?
A high Information Ratio indicates that the portfolio manager is generating strong excess returns relative to the benchmark for each unit of risk taken.
Results are for informational purposes only and do not constitute professional advice.