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. 

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

  1. First, determine the portfolio return .
    • The portfolio return  is calculated to be : 5000.
  2. Next, determine the benchmark return. 
    • The benchmark return is measured to be: 3000.
  3. Next, determine the tracking error. 
    • The tracking error is found to be: .89.
  4. 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 = ( )