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