Information Ratio Calculator
Measure portfolio manager skill and excess return against tracking error
Calculate Information Ratio
Portfolio value at the beginning of the period
Portfolio value at the end of the period
Return of the benchmark index (e.g., S&P 500)
Standard deviation of portfolio vs benchmark returns
Information Ratio Results
Formula used: Information Ratio = (Portfolio Return - Benchmark Return) ÷ Tracking Error
Portfolio Return: ($0 - $0) ÷ $0 × 100 = 0.00%
Excess Return: 0.00% - 0.00% = 0.00%
Information Ratio: 0.00% ÷ 0.00% = 0.0000
Performance Assessment
Example Calculation
Company Alpha Portfolio
Beginning value: $2,000,000
Ending value: $2,200,000
Benchmark return: 8%
Tracking error: 5%
Step-by-Step Calculation
1. Portfolio Return: ($2,200,000 - $2,000,000) ÷ $2,000,000 = 10%
2. Excess Return: 10% - 8% = 2%
3. Information Ratio: 2% ÷ 5% = 0.4
Interpretation
An information ratio of 0.4 indicates good portfolio management skills, generating 0.4 units of excess return per unit of tracking error.
IR Components
Portfolio Return
Performance of managed portfolio
Benchmark Return
Market index performance
Tracking Error
Volatility of excess returns
IR Interpretation
Excellent management skill
Good management ability
Modest outperformance
Underperforming benchmark
Understanding Information Ratio
What is Information Ratio?
The Information Ratio (IR) is a performance metric that measures a portfolio manager's ability to generate excess returns relative to a benchmark, adjusted for the risk taken to achieve those returns. It evaluates investment skill by comparing excess return to tracking error.
Why is IR Important?
- •Measures portfolio manager skill and consistency
- •Compares risk-adjusted performance vs benchmark
- •Helps evaluate active management value
- •Assists in manager selection decisions
IR Formula Components
IR = (Portfolio Return - Benchmark Return) ÷ Tracking Error
IR = Excess Return ÷ Tracking Error
- Portfolio Return: Actual return achieved by the portfolio
- Benchmark Return: Return of the relevant market index
- Excess Return: Portfolio return minus benchmark return
- Tracking Error: Standard deviation of excess returns
High IR: Consistent outperformance with controlled risk
Negative IR: Underperformance relative to benchmark
Information Ratio vs Sharpe Ratio
Information Ratio
- • Compares to benchmark return
- • Uses tracking error as risk measure
- • Evaluates manager skill vs market
- • Focuses on relative performance
Sharpe Ratio
- • Compares to risk-free rate
- • Uses standard deviation as risk measure
- • Evaluates absolute risk-adjusted return
- • Focuses on total portfolio risk
Fund Selection
Compare mutual funds and ETFs to find skilled managers
Performance Review
Evaluate portfolio manager effectiveness over time
Risk Management
Assess consistency of outperformance vs volatility