Information Ratio Calculator
Optimize your investment decisions with our Information Ratio Calculator. Measure risk-adjusted returns efficiently. Make informed choices. Try it now!
Related Calculators: Sharpe Ratio, Sortino Ratio, Treynor Ratio, Jensens Alpha, Maximum Drawdown Calculator
Information Ratio Formula
The Information Ratio (IR) is a widely used measure to assess the risk-adjusted performance of an investment portfolio. It is calculated using the following formula:
IR = (Portfolio Return - Benchmark Return) / Tracking Error
- Portfolio Return: The return generated by the investment portfolio.
- Benchmark Return: The return of the chosen benchmark index.
- Tracking Error: The standard deviation of the difference between the portfolio return and the benchmark return.
The Information Ratio helps investors evaluate the skill of portfolio managers in generating excess returns relative to the benchmark while considering the level of risk taken. A higher IR indicates better risk-adjusted performance. Use our Information Ratio Calculator to analyze your portfolio's performance now!
Information Ratio vs Sharpe Ratio
Both the Information Ratio and Sharpe Ratio are widely used performance measures in investment analysis, but they serve different purposes:
The Information Ratio assesses the risk-adjusted performance of an investment portfolio relative to a benchmark. It measures the manager's ability to generate excess returns while considering the level of risk taken.
The Sharpe Ratio, on the other hand, evaluates the risk-adjusted return of an investment by comparing the return achieved above a risk-free rate to the volatility of the investment.
While both ratios provide valuable insights, the Information Ratio focuses on the manager's skill in outperforming a benchmark, while the Sharpe Ratio considers the overall risk and return trade-off.
Understanding these ratios can help investors make informed decisions about the risk and return characteristics of their portfolios. Use our calculator tools to calculate both ratios and gain valuable insights into your investment performance.
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