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Information Ratio Calculator

Formula

The formula to calculate the Information Ratio (IR) is:

$IR = \frac{PR - BR}{TE}$

Where:

$IR$ is the Information Ratio.
$PR$ is the portfolio return.
$BR$ is the benchmark return.
$TE$ is the tracking error.

Example

Let's say the portfolio return ( $PR$ ) is 10%, the benchmark return ( $BR$ ) is 8%, and the tracking error ( $TE$ ) is 2%. Using the formula:

$IR = \frac{PR - BR}{TE} = \frac{10 - 8}{2} = 1$

So, the Information Ratio ( $IR$ ) is 1.

What is the Information Ratio?

The Information Ratio (IR) is a measure of portfolio performance relative to a benchmark, adjusted for the risk taken. It is calculated by dividing the difference between the portfolio return and the benchmark return by the tracking error. A higher Information Ratio indicates better risk-adjusted performance.