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Information Ratio Calculator

Measure a portfolio manager's ability to generate excess returns relative to a benchmark index.

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Calculation Parameters

Specify your inputs below.

Calculated Result

Portfolio Excess Return 3.50%
Information Ratio (IR) 1.40
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Expert Tip

An Information Ratio between 0.5 and 1.0 is good, while a ratio above 1.0 indicates exceptional risk-managed outperformance.

How this Calculator Works

This calculator computes the information ratio, which evaluates the risk-adjusted excess returns of a portfolio relative to a benchmark. It divides the active return by the tracking error (volatility of excess returns) to show manager efficiency. Institutional investors use it to evaluate mutual fund performance.

Formula & Methodology

Information Ratio = (Portfolio Return - Benchmark Return) / Tracking Error - Portfolio Return is the actual return generated by the fund. - Benchmark Return is the return of the comparison index (e.g., S&P 500). - Tracking Error is the standard deviation of the differences between the portfolio and benchmark returns.

Step-by-Step Calculation Example

Here is a step-by-step example showing how the calculations are performed:

A mutual fund returns 12% over a year, compared to 9% for its benchmark index. The fund's tracking error is 2%. 1. Calculate excess return: 12% - 9% = 3%. 2. Divide by tracking error: 3% / 2% = 1.50. Result: The Information Ratio is 1.50, indicating the manager generated 1.50 units of excess return per unit of active risk.

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Detailed Insights & Expert Guide

ℹ️ About this Calculation

This investment analytics calculator evaluates portfolio yield, compounding growth, risk-adjusted returns, present/future asset valuations, and capital growth metrics based on CFA and modern portfolio theory (MPT) principles.

Variable Glossary

Input

Investment Parameters

Initial principal, periodic contribution, interest rate, discount factor, holding period, or asset price inputs.

Parameter

Performance Metrics

Compound Annual Growth Rate (CAGR %), Net Present Value (NPV), Internal Rate of Return (IRR), or Sharpe ratio.

How to Calculate Step-by-Step

1

Step 1

Enter your initial investment capital, asset purchase prices, or cash flow streams.

2

Step 2

Set compounding frequency, discount rate, or benchmark risk-free rate factors.

3

Step 3

Review calculated total return value, annualized growth %, or risk-adjusted alpha/beta statistics.

FAQ

How does compounding frequency impact investment returns?
More frequent compounding (e.g. monthly or daily vs. annually) generates higher effective annual yields (APY) because interest is calculated on accumulated interest earlier in the period.
What is the difference between Sharpe Ratio and Sortino Ratio?
The Sharpe ratio divides excess return by total standard deviation (both upside and downside volatility), whereas the Sortino ratio divides excess return by downside deviation only.
Should investment calculators replace professional wealth management?
No. Investment calculators model financial mathematics under assumed growth rates. Actual market performance fluctuates, so consult a licensed financial planner (CFP) or RIA for personalized advice.