Enter the portfolio return , the benchmark return, and the tracking error into the Information Ratio Calculator. The calculator will evaluate and display the Information Ratio.
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Information Ratio Formula
The following formula is used to calculate the Information Ratio.
IR = (PR – BR) / TE
- Where IR is the Information Ratio ( )
- PR is the portfolio return
- BR is the benchmark return
- TE is the tracking error
How to Calculate Information Ratio?
The following example problems outline how to calculate Information Ratio.
Example Problem #1
- First, determine the portfolio return .
- The portfolio return is calculated to be : 5000.
- Next, determine the benchmark return.
- The benchmark return is measured to be: 3000.
- Next, determine the tracking error.
- The tracking error is found to be: .89.
- Finally, calculate the Information Ratio using the formula above:
IR = (PR – BR) / TE
The values given above are inserted into the equation below and the solution is calculated:
IR = (5000 – 3000) / .89 = 2247.19 ( )
Example Problem #2
The variables required for this problem are provided below:
portfolio return = 6000
benchmark return = 2000
tracking error = .90
Test your knowledge using the equation and check your answer with the calculator above.
IR = (PR – BR) / TE = ( )
