What is the information ratio formula?

Information ratio Formula = (Rp – Rb) / Tracking error Rp = rate of return of the investment portfolio. read more. Rb = Benchmark rate of return. Tracking error = Standard deviation of the excess return with respect to the benchmark rate of return.

How do you calculate information ratio examples?

Information Ratio = (Portfolio Return – Benchmark Return) / Tracking Error

  1. Information Ratio = (1.14% – 0.54%) / 2.90%
  2. Information Ratio = 0.60% / 2.90%
  3. Information Ratio = 0.21.

What is good information ratio?

Generally speaking, an information ratio in the 0.40-0.60 range is considered quite good. Information ratios of 1.00 for long periods of time are rare. Typical values for information ratios vary by asset class.

How do you calculate information ratio with daily returns?

How is the Information Ratio Calculated?

  1. Step 1 – First, note down the daily returns of a portfolio across a specific period, say, a month or quarter or even a year.
  2. Step 2 – Find the average of those returns, which is such a portfolio’s rate of return.
  3. Step 3 – Calculate the index’s rate of return in the same manner.

What is a good information ratio?

Is the appraisal ratio the same as the information ratio?

The information ratio, also known as appraisal ratio, measures and compares the active return of an investment (e.g., a security or portfolio) compared to a benchmark index relative to the volatility of the active return (also known as active risk or benchmark tracking risk).

What does a negative information ratio mean?

If the information ratio of a mutual fund is negative, it indicates that the mutual fund manager was unable to produce any excess returns at all. An information ratio of less than 0.4 means that the mutual fund could not produce excess returns for a sufficiently long time and the fund may not be a good investment.

Is a negative information ratio bad?

A negative Information Ratio is obviously bad as it indicates that the portfolio’s return is less than the benchmark return and thus Active Return is negative.

Why is information ratio important?

The information ratio helps to determine by how much and how often a portfolio trades in excess of its benchmark but factors in the risk that comes with achieving the excess returns.

Do you want a high or low information ratio?

The higher the information ratio, the better. If the information ratio is less than zero, it means the active manager failed on the first objective of outperforming the benchmark.