The information ratio compares active return with tracking error against a benchmark.
Information Ratio Calculator
Results
Portfolio return
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Information ratio
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Table of Contents
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What is Information Ratio?
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How to Use This Calculator
- Enter or select Beginning portfolio value, Ending portfolio value, Benchmark return, Tracking error.
- Check the unit beside each measurement. For a percentage or rate, use the scale and time period stated in the form.
- Choose Calculate, then compare the output with the formula and example below. If you change a value or option, calculate again to update the result.
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Formula Used
IR = (portfolio return−benchmark return)/tracking error
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Variables Explained
| Input | What it means |
|---|---|
| Beginning portfolio value | The numeric input for the relationship being evaluated. |
| Ending portfolio value | The numeric input for the relationship being evaluated. |
| Benchmark return | Use the measured or stated value for this item, with the unit or category shown beside the field. |
| Tracking error | Use the measured or stated value for this item, with the unit or category shown beside the field. |
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Worked Example
Portfolio return 12%, benchmark 9% and tracking error 6% give IR=0.5.
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Why Use This Calculator?
Compare the result with the underlying statement, budget or proposed transaction. It is most useful when every amount uses the same reporting period and the same accounting definition.
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Common Mistakes
- Tracking error is the volatility of active returns, not the portfolio’s overall volatility.
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Frequently Asked Questions
Should I use monthly or annual figures?
Use one consistent period for every amount and rate in the relationship. If a form specifies an annual rate or a monthly amount, follow that label rather than mixing time periods.
Does the result include fees and tax?
Only the costs and taxes represented by the inputs and formula are included. A real transaction can include other charges, so compare the estimate with the underlying agreement or statement.
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Sources & References
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