The information 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). It is defined as the active return (the difference between the returns of the investment and the returns of the benchmark) divided by the tracking error (the standard deviation of the active return, i.e., the additional risk). It represents the additional amount of return that an investor receives per unit of increase in risk.[1]
The information ratio is simply the ratio of the active return of the portfolio divided by the tracking error of its return, with both components measured relative to the performance of the agreed-on benchmark.
It is often used to gauge the skill of managers of mutual funds, hedge funds, etc. It measures the active return of the manager's portfolio divided by the amount of risk that the manager takes relative to the benchmark. The higher the information ratio, the higher the active return of the portfolio, given the amount of risk taken, and the better the manager.
The information ratio is similar to the Sharpe ratio, the main difference being that the Sharpe ratio uses a risk-free return as benchmark (such as a U.S. Treasury security) whereas the information ratio uses a risky index as benchmark (such as the S&P500). The Sharpe ratio is useful for an attribution of the absolute returns of a portfolio, and the information ratio is useful for an attribution of the relative returns of a portfolio.[2]
^Clarke, Roger G.; de Silva, Harindra; Thorley, Steven (2015), Analysis of Active Portfolio Management, CFA Institute
^Clarke, Roger G.; de Silva, Harindra; Thorley, Steven (2015), Analysis of Active Portfolio Management, CFA Institute, p. 7
The informationratio measures and compares the active return of an investment (e.g., a security or portfolio) compared to a benchmark index relative...
In decision tree learning, information gain ratio is a ratio of information gain to the intrinsic information. It was proposed by Ross Quinlan, to reduce...
In finance, the Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) measures the performance of an investment...
In mathematics, a ratio (/ˈreɪʃ(i)oʊ/) shows how many times one number contains another. For example, if there are eight oranges and six lemons in a bowl...
In mathematics, two quantities are in the golden ratio if their ratio is the same as the ratio of their sum to the larger of the two quantities. Expressed...
A financial ratio or accounting ratio states the relative magnitude of two selected numerical values taken from an enterprise's financial statements....
odds ratio (OR) is a statistic that quantifies the strength of the association between two events, A and B. The odds ratio is defined as the ratio of the...
alternative for the widely used Sharpe ratio and is based on information the Sharpe ratio discards. Omega is calculated by creating a partition in the...
In survival analysis, the hazard ratio (HR) is the ratio of the hazard rates corresponding to the conditions characterised by two distinct levels of a...
A ratio distribution (also known as a quotient distribution) is a probability distribution constructed as the distribution of the ratio of random variables...
The 'PEG ratio' (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings...
the V2 ratio is to improve on existing and popular measures of risk-adjusted return, such as the Sharpe ratio, informationratio or Sterling ratio by taking...
the central government, state governments and industry partners in the ratio 50:35:15. Prior to 2014, the IIITs at Gwalior, Allahabad, Jabalpur, and...
The expense ratio of a stock or asset fund is the total percentage of fund assets used for administrative, management, advertising (12b-1), and all other...
bank. This rate is commonly referred to as the cash reserve ratio or shortened as reserve ratio. Though the definitions vary, the commercial bank's reserves...
armed conflicts, the civilian casualty ratio (also civilian death ratio, civilian-combatant ratio, etc.) is the ratio of civilian casualties to combatant...
original post. Twitter users may "initiate" a ratio by replying or quote retweeting a tweet with the text "ratio" in the hopes that their tweet acquires more...
they risk-adjusted ratios (Sharpe ratio, informationratio) or differential returns compared to benchmarks (alphas). The Sharpe ratio is the simplest and...
supergolden ratio is a geometrical proportion close to 85/58. Its true value is the real solution of the equation x3 = x2 + 1. The name supergolden ratio results...
The display aspect ratio (DAR) is the aspect ratio of a display device and so the proportional relationship between the physical width and the height...
use of likelihood ratios for decision rules was made at a symposium on information theory in 1954. In medicine, likelihood ratios were introduced between...
Global Information