Information Ratio Calculator

✖Portfolio Return refers to the gain or loss realized by an investment portfolio containing several types of investments.ⓘ Portfolio Return [R _p]			+10% -10%
✖Benchmark Return refers to the return achieved by a designated benchmark index over a specific period of time.ⓘ Benchmark Return [BR]			+10% -10%
✖Tracking Error is a measure of how closely a portfolio follows the index it is benchmarked against.ⓘ Tracking Error [TE]			+10% -10%

✖Information Ratio is a measure of the excess return of an investment relative to a benchmark, adjusted for the volatility of those excess returns.ⓘ Information Ratio [IR]

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Formula

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Information Ratio

Formula

`"IR" = ("R "_{"p"}-"BR")/"TE"`

Example

`"0.25"=("5"-"3")/"8"`

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Information Ratio Solution

STEP 0: Pre-Calculation Summary

Formula Used

Information Ratio = (Portfolio Return-Benchmark Return)/Tracking Error
IR = (R _p-BR)/TE
This formula uses 4 Variables

Variables Used

Information Ratio - Information Ratio is a measure of the excess return of an investment relative to a benchmark, adjusted for the volatility of those excess returns.
Portfolio Return - Portfolio Return refers to the gain or loss realized by an investment portfolio containing several types of investments.
Benchmark Return - Benchmark Return refers to the return achieved by a designated benchmark index over a specific period of time.
Tracking Error - Tracking Error is a measure of how closely a portfolio follows the index it is benchmarked against.

STEP 1: Convert Input(s) to Base Unit

Portfolio Return: 5 --> No Conversion Required
Benchmark Return: 3 --> No Conversion Required
Tracking Error: 8 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

IR = (R _p-BR)/TE --> (5-3)/8

Evaluating ... ...

IR = 0.25

STEP 3: Convert Result to Output's Unit

0.25 --> No Conversion Required

FINAL ANSWER

0.25 <-- Information Ratio

(Calculation completed in 00.004 seconds)

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Credits

Created by Vishnu K

BMS College of Engineering (BMSCE), Bangalore

Vishnu K has created this Calculator and 200+ more calculators!

Verified by Kashish Arora

Satyawati College (DU), New Delhi

Kashish Arora has verified this Calculator and 50+ more calculators!

< 22 Investment Calculators

Portfolio Standard Deviation

Go Portfolio Standard Deviation = sqrt((Asset Weight)^2*Variance of Returns on Assets 1^2+(Asset Weight)^2*Variance of Returns on Assets 2^2+2*(Asset Weight*Asset Weight*Variance of Returns on Assets 1*Variance of Returns on Assets 2*Portfolio Correlation Coefficient))

Portfolio Variance

Go Portfolio Variance = (Asset Weight)^2*Variance of Returns on Assets 1^2+(Asset Weight)^2*Variance of Returns on Assets 2^2+2*(Asset Weight*Asset Weight*Variance of Returns on Assets 1*Variance of Returns on Assets 2*Portfolio Correlation Coefficient)

Jensen's Alpha

Go Jensen's Alpha = Annual Return on Investment-(Risk Free Interest Rate+Beta of the Portfolio*(Annual return of the market benchmark-Risk Free Interest Rate))

Compound Interest

Go Future Value of Investment = Principal Investment Amount*(1+(Annual Interest Rate/Number of Periods))^(Number of Periods*Number of Years Money is Invested)

Certificate of Deposit

Go Certificate of Deposit = Initial Deposit Amount*(1+(Annual Nominal Interest Rate/Compounding Periods))^(Compounding Periods*Number of Years)

Actuarial Method Unearned Interest Loan

Go Actuarial Method Unearned Interest Loan = (Number of Remaining Monthly Payments*Monthly Payment*Annual Percentage Rate)/(100+Annual Percentage Rate)

Equivalent Annual Annuity

Go Equivalent Annuity Cashflow = (Rate per Period*(Net Present Value (NPV)))/(1-(1+Rate per Period)^-Number of Periods)

Portfolio Expected Return

Go Portfolio Expected Return = Asset Weight*(Expected Return on Asset 1)+Asset Weight*(Expected Return on Asset 2)

Total Stock Return

Go Total Stock Return = ((Ending Stock Price-Initial Stock Price)+Dividend)/Initial Stock Price

Annuity Payment

Go Annuity Payment = (Rate per Period*Present Value)/(1-(1+Rate per Period)^-Number of Periods)

Value at Risk

Go Value at Risk = -Mean of Profit and Loss+Standard Deviation of Profit and Loss*Standard Normal Variate

Profitability Index

Go Profitability Index (PI) = (Net Present Value (NPV)+Initial Investment)/Initial Investment

Sharpe Ratio

Go Sharpe Ratio = (Expected Portfolio Return-Risk Free Rate)/Portfolio Standard Deviation

Capital Gains Yield

Go Capital Gains Yield = (Current Stock Price-Initial Stock Price)/Initial Stock Price

Treynor Ratio

Go Treynor's Ratio = (Expected Portfolio Return-Risk Free Rate)/Beta of the Portfolio

Average Return on Investment

Go Average Return = modulus(Total Value of Return)/Total Number of Returns

Information Ratio

Go Information Ratio = (Portfolio Return-Benchmark Return)/Tracking Error

Rate of Return

Go Rate of Return = ((Current Value-Original Value)/Original Value)*100

Straight Line Depreciation

Go Straight Line Depreciation = (Asset's Cost-Salvage)/Life

Portfolio Turnover Rate

Go Porfolio Turnover Rate = (Total Sales and Purchases of Shares/Average Net Assets)*100

Real Rate of Return

Go Real Rate of Return = ((1+Nominal Rate)/(1+Inflation Rate))-1

Risk Premium

Go Risk Premium = Return on Investment (ROI)-Risk Free Return

Information Ratio Formula

Information Ratio = (Portfolio Return-Benchmark Return)/Tracking Error
IR = (R _p-BR)/TE

What is Information Ratio?

The information ratio is a widely used measure in investment analysis that evaluates the risk-adjusted performance of an investment portfolio relative to a chosen benchmark index. It quantifies the excess return generated by the portfolio manager for each unit of risk taken, specifically tracking error. The formula for information ratio is calculated by dividing the excess return of the portfolio over the benchmark by the tracking error of the portfolio. Essentially, it assesses the consistency and skill of the portfolio manager in generating returns beyond what could be achieved by simply tracking the benchmark. A higher information ratio indicates that the portfolio manager has been able to outperform the benchmark with less risk, implying superior performance and potentially adding value to investors. Conversely, a lower information ratio may suggest underperformance or excessive risk-taking relative to the benchmark.

How to Calculate Information Ratio?

Information Ratio calculator uses Information Ratio = (Portfolio Return-Benchmark Return)/Tracking Error to calculate the Information Ratio, The Information Ratio formula is defined as a measure of the excess return of a portfolio relative to a benchmark, adjusted for the volatility of those excess returns. Information Ratio is denoted by IR symbol.

How to calculate Information Ratio using this online calculator? To use this online calculator for Information Ratio, enter Portfolio Return (R _p), Benchmark Return (BR) & Tracking Error (TE) and hit the calculate button. Here is how the Information Ratio calculation can be explained with given input values -> 0.25 = (5-3)/8.

FAQ

What is Information Ratio?

The Information Ratio formula is defined as a measure of the excess return of a portfolio relative to a benchmark, adjusted for the volatility of those excess returns and is represented as IR = (R _p-BR)/TE or Information Ratio = (Portfolio Return-Benchmark Return)/Tracking Error. Portfolio Return refers to the gain or loss realized by an investment portfolio containing several types of investments, Benchmark Return refers to the return achieved by a designated benchmark index over a specific period of time & Tracking Error is a measure of how closely a portfolio follows the index it is benchmarked against.

How to calculate Information Ratio?

The Information Ratio formula is defined as a measure of the excess return of a portfolio relative to a benchmark, adjusted for the volatility of those excess returns is calculated using Information Ratio = (Portfolio Return-Benchmark Return)/Tracking Error. To calculate Information Ratio, you need Portfolio Return (R _p), Benchmark Return (BR) & Tracking Error (TE). With our tool, you need to enter the respective value for Portfolio Return, Benchmark Return & Tracking Error and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

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