Information Ratio Calculator

Assume you have monthly data for a portfolio and its benchmark for a year:

Month	Portfolio Return (%)	Benchmark Return (%)
Jan	1.5%	1.0%
Feb	2.0%	1.5%
Mar	1.2%	1.0%
Apr	1.8%	1.2%
May	2.5%	2.0%
Jun	1.0%	0.8%
Jul	1.3%	1.1%
Aug	1.7%	1.4%
Sep	1.4%	1.2%
Oct	2.2%	2.0%
Nov	1.9%	1.8%
Dec	2.3%	2.1%

FAQs

How do you calculate information ratio? The Information Ratio (IR) is a measure of a portfolio manager’s ability to generate excess returns relative to a benchmark, adjusted for the level of risk taken. It’s typically calculated as follows:

IR = (Portfolio Return – Benchmark Return) / Tracking Error

• Portfolio Return: The return of the portfolio being evaluated.
• Benchmark Return: The return of the benchmark index or asset.
• Tracking Error: The standard deviation of the excess returns (portfolio return – benchmark return) over a specified period.

What is an example of information ratio? For example, if a portfolio generated a return of 10% over a year, and the benchmark returned 8%, with a tracking error of 5%, the Information Ratio would be (10% – 8%) / 5% = 0.4.

What is the information ratio in Excel? You can calculate the Information Ratio in Excel by plugging in the formula mentioned above. You’ll need the portfolio returns, benchmark returns, and the tracking error calculated over your chosen time period.

What is a good information ratio for a fund? A good Information Ratio varies depending on the context, but generally, a higher IR is considered better. An IR above 0.5 is often seen as favorable, indicating that the portfolio manager is adding value relative to the benchmark. However, what’s considered “good” can vary by industry and investment strategy.

What is the meaning of information ratio? The Information Ratio measures a portfolio manager’s skill in generating excess returns compared to a benchmark, considering the level of risk taken. It provides insight into whether a manager’s active decisions are adding value to the portfolio.

What is the formula of information ratio IC? The Information Coefficient (IC) is a separate metric that measures the relationship between a portfolio manager’s forecasts and the actual returns. The formula for IC is:

IC = Correlation(Actual Returns, Manager’s Forecasts)

What is the difference between information ratio and appraisal ratio? The Information Ratio and Appraisal Ratio are similar concepts. Both assess a portfolio manager’s ability to generate excess returns. The primary difference is in their formulas and terminology used in different contexts. The Information Ratio uses tracking error, while the Appraisal Ratio uses the residual risk of the portfolio.

Is information ratio the same as alpha? No, Information Ratio and Alpha are not the same. Information Ratio assesses the risk-adjusted excess return relative to a benchmark, while Alpha measures the excess return of a portfolio after adjusting for its systematic risk (beta). Alpha can be considered one component of the Information Ratio.

What is information ratio CFA L2? The CFA Level 2 (CFA Level II) curriculum covers various topics related to investment management, including performance evaluation. The Information Ratio is one of the metrics discussed in the curriculum, and candidates are likely to learn how to calculate and interpret it in the context of portfolio management.

How to do a ratio scale in Excel? Creating a ratio scale in Excel typically involves setting up a table with numerical values and performing calculations. To create a ratio scale:

1. Enter your data into Excel.
2. Calculate the ratios by dividing one number by another (e.g., A1/B1).
3. Format the cells to display the ratios as needed (e.g., as decimals or percentages).

Where is the ratio formula in Excel? The formula to calculate a ratio in Excel is simply division. You can use the “/” operator to divide one cell by another. For example, to calculate the ratio of A1 to B1, you can enter “=A1/B1” into another cell.

How do I calculate percentage ratio in Excel? To calculate a percentage ratio in Excel, divide one number by another and then multiply by 100 to express it as a percentage. For example, if you want to find the percentage ratio of A1 to B1, you can use the formula “= (A1/B1) * 100%”.

What is a bad information ratio? A bad Information Ratio is one where the portfolio manager is not generating excess returns compared to the benchmark, or the returns are not sufficient to compensate for the level of risk taken. A negative Information Ratio indicates underperformance compared to the benchmark.

What does an information ratio of 0.5 mean? An Information Ratio of 0.5 means that the portfolio has generated excess returns (above the benchmark) equal to 0.5% per unit of tracking error or risk. It suggests that, on average, the portfolio manager has added value equivalent to 0.5% of tracking error per period.

What is the information ratio in private equity? The Information Ratio is not commonly used in private equity as it primarily applies to traditional asset management where there are liquid benchmarks. Private equity investments typically involve illiquid assets, making it challenging to calculate a comparable benchmark return and tracking error.

What is the information ratio quizlet? Quizlet is an online learning platform with flashcards and study tools. You can find flashcards related to various finance and investment topics, including the Information Ratio, on Quizlet. It’s a resource that many students use for studying and test preparation.

What is information ratio and Sharpe ratio CFA? In the CFA (Chartered Financial Analyst) program, candidates learn about various performance evaluation metrics, including the Information Ratio and Sharpe Ratio. The Information Ratio assesses a portfolio manager’s ability to generate excess returns, while the Sharpe Ratio measures risk-adjusted performance. Both are important concepts in the CFA curriculum.

How do you find the ratio of three numbers? To find the ratio of three numbers, you typically express the relationship between the numbers as a fraction. For example, if you have three numbers A, B, and C, the ratio of A to B to C would be represented as A:B:C.

What is a good information coefficient? A good Information Coefficient (IC) is typically close to 1 or -1. An IC of 1 indicates that a portfolio manager’s forecasts perfectly predict actual returns, while an IC of -1 means the forecasts are perfectly inversely related to actual returns. A higher absolute value of IC suggests better forecasting accuracy.

What does IC mean in banking? In banking and finance, IC can stand for “Information Coefficient” or “Information Coherence,” both of which are related to the quality and accuracy of financial forecasts and information.

What is the effective information coefficient used to measure investment skills? The Effective Information Coefficient (EIC) is a measure used to assess the skill or ability of an investment manager in producing accurate forecasts and insights. It considers the quality of forecasts and how they translate into portfolio returns, factoring in transaction costs and risk management.

What is the information ratio of Morningstar? Morningstar, a financial services company, provides a variety of performance metrics and ratings for mutual funds and other investments. The Information Ratio may not be a specific metric provided by Morningstar, but they do offer other risk-adjusted performance measures and ratings for funds.

What three main categories of information do ratios provide? Ratios provide information in three main categories: liquidity ratios (e.g., current ratio), profitability ratios (e.g., return on equity), and solvency ratios (e.g., debt-to-equity ratio). These ratios help analyze a company’s financial health and performance from different angles.

Which valuation ratio is best? The choice of the best valuation ratio depends on the specific context and the industry. Common valuation ratios include the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and enterprise value-to-EBITDA (EV/EBITDA) ratio. The most appropriate ratio to use varies depending on the type of company and the purpose of the valuation.

What is a good alpha ratio? A good Alpha ratio indicates that a portfolio or investment has generated excess returns (alpha) relative to its expected returns based on its level of risk (beta). A positive alpha is generally considered favorable, but what constitutes a “good” alpha can vary by industry and investment strategy.

What is a good alpha value? A good alpha value is typically positive, indicating that the investment or portfolio has outperformed its expected returns based on its risk exposure. However, what is considered a “good” alpha can vary depending on factors like the investment horizon, asset class, and investor’s goals.

What is the formula for alpha ratio? The formula for Alpha (α) is typically expressed as follows: Alpha = Actual Portfolio Return – [Risk-Free Rate + Beta (Benchmark Return – Risk-Free Rate)]

Why is CFA Level 2 so hard? CFA Level 2 is considered challenging because it delves into more complex and detailed topics in finance and investment management. It requires a deep understanding of the material, including financial statement analysis, equity and fixed income valuation, derivatives, portfolio management, and ethics. The exam questions are also designed to be challenging to assess candidates’ comprehension and application of these concepts.

What are the hardest parts of CFA Level 2? The difficulty of CFA Level 2 can vary depending on individual strengths and weaknesses. However, some candidates find the following areas particularly challenging:

1. Derivatives and Alternative Investments: These topics involve complex instruments and strategies.
2. Financial Statement Analysis: Analyzing and interpreting financial statements in-depth can be demanding.
3. Equity Valuation: Valuing individual stocks and understanding equity markets requires a strong foundation.
4. Fixed Income: Understanding bond pricing, yield curves, and credit analysis can be complex.

How many people pass CFA Level 2? The pass rates for CFA Level 2 can vary from year to year, but historically, they have been lower than for Level 1. Pass rates are typically in the 40-50% range, indicating that a significant percentage of candidates do not pass the Level 2 exam.

How do you convert scale to ratio scale? Converting a scale to a ratio scale means establishing a meaningful zero point and equal intervals between measurements. For example, converting temperature from Fahrenheit to Celsius is a ratio scale transformation because both scales have a meaningful zero point (absolute zero) and equal intervals.

How do you turn a scale factor into a ratio? To turn a scale factor into a ratio, you can express it as a fraction. For example, if the scale factor is 1:1000, you can write it as a ratio of 1/1000.

How do you make a ratio scale? A ratio scale is created by ensuring that measurements have a true zero point and equal intervals between values. This often involves defining a meaningful unit of measurement and establishing a reference point from which all measurements can be compared.

What is the formula for ratio and proportion? The formula for a ratio is typically expressed as “a:b,” where “a” and “b” are two numbers representing the relationship between quantities. The formula for proportion is often expressed as “a/b = c/d,” indicating that two ratios are equal to each other.

How do I calculate the ratio of three numbers in Excel? To calculate the ratio of three numbers in Excel, you can set up a formula like this: =A1/B1/C1 This formula divides the value in cell A1 by the value in cell B1 and then divides the result by the value in cell C1 to find the ratio of the three numbers.

What is the return information ratio? The return information ratio is not a standard financial metric. It seems to be a combination of “return” and “information ratio,” which are two different concepts. The information ratio measures a portfolio manager’s skill in generating excess returns relative to a benchmark, while “return” refers to the investment’s overall performance.

Is the information ratio affected by cash? Yes, the Information Ratio can be affected by the level of cash or cash equivalents held in a portfolio. If a portfolio has a significant cash position, it can lower the tracking error and, therefore, impact the Information Ratio. Cash is typically considered a lower-risk asset, so having more cash can reduce the overall risk of the portfolio.

What is the difference between information ratio and Sortino ratio? The Information Ratio measures a portfolio manager’s ability to generate excess returns relative to a benchmark, adjusted for risk (measured by tracking error). The Sortino Ratio, on the other hand, focuses on downside risk and is calculated as the excess return of an investment divided by the downside semi-variance (a measure of downside volatility).

What does a ratio of 1.0 mean? A ratio of 1.0 means that the two quantities being compared are equal in magnitude. In other words, there is a one-to-one relationship between them.

Is a current ratio of 0.5 good? A current ratio of 0.5 may indicate a potential liquidity problem for a company. It suggests that the company’s current liabilities are twice as large as its current assets. A higher current ratio (usually above 1) is generally considered better, as it indicates that the company has more current assets to cover its current liabilities.

What does 2.1 ratio mean? A ratio of 2.1 means that one quantity is 2.1 times larger than another. It indicates the relationship or proportion between the two quantities.

What is the 2 20 rule in private equity? The “2 and 20” rule in private equity refers to the fee structure commonly used by private equity funds. It consists of two components:

1. 2% Management Fee: Investors (limited partners) typically pay a management fee of 2% of the total assets under management (AUM) to cover the fund’s operating expenses.
2. 20% Performance Fee (Carried Interest): The fund manager receives a performance fee, often referred to as “carried interest,” equal to 20% of the profits generated by the fund above a specified hurdle rate.

What is the most relevant ratio for investors? The most relevant ratio for investors can vary depending on their investment goals and the type of assets they are considering. Commonly used ratios include the Price-to-Earnings (P/E) ratio for stocks, Debt-to-Equity ratio for assessing a company’s financial leverage, and the Price-to-Book (P/B) ratio for evaluating the value of a company’s assets.

How much of your portfolio should be in private equity? The allocation to private equity in a portfolio depends on the investor’s risk tolerance, investment goals, and overall portfolio diversification. Typically, private equity is considered a long-term and illiquid investment. Many financial advisors suggest allocating around 5-15% of a diversified portfolio to alternative investments like private equity.

What does a current ratio of 1.2 mean quizlet? A current ratio of 1.2 means that a company’s current assets are 1.2 times greater than its current liabilities. It indicates that the company has a reasonable cushion of current assets to cover its short-term obligations.

What are the 5 types of ratio analysis quizlet? The five types of ratio analysis commonly used in financial analysis are:

1. Liquidity Ratios: Measure a company’s ability to meet its short-term obligations.
2. Profitability Ratios: Assess the company’s ability to generate profits.
3. Solvency Ratios: Evaluate a company’s financial leverage and long-term debt-paying ability.
4. Efficiency Ratios: Gauge how efficiently a company utilizes its assets and resources.
5. Valuation Ratios: Help assess the attractiveness of an investment in the company’s stock.

Is a high Jensen’s Alpha good? A high Jensen’s Alpha suggests that a portfolio or investment has generated excess returns above what would be expected given its level of systematic risk (beta). In general, a positive Jensen’s Alpha is considered favorable, as it indicates outperformance relative to the risk-adjusted benchmark return.

Is information ratio same as Sharpe ratio? No, the Information Ratio and Sharpe Ratio are different measures. The Information Ratio assesses a portfolio manager’s ability to generate excess returns relative to a benchmark, considering the level of risk taken (measured by tracking error). The Sharpe Ratio, on the other hand, measures risk-adjusted performance by comparing the portfolio’s excess return to its total risk (standard deviation).

What is a good monthly information ratio? A good monthly Information Ratio varies depending on the context and investment strategy. Generally, an Information Ratio greater than 0.5 is often considered favorable, indicating that the portfolio manager is adding value relative to the benchmark on a monthly basis. However, what’s considered “good” can vary by industry and specific investment objectives.

What does a Sharpe ratio of 1.5 mean? A Sharpe Ratio of 1.5 indicates that the investment or portfolio has generated an excess return (above the risk-free rate) equivalent to 1.5 times its standard deviation or risk. A higher Sharpe Ratio suggests better risk-adjusted performance, as the portfolio is generating more return for each unit of risk taken.

How do you find the simplest form of a ratio? To find the simplest form of a ratio, you can divide both numbers in the ratio by their greatest common divisor (GCD) or greatest common factor (GCF). This reduces the ratio to its simplest terms. For example, if you have a ratio of 4:8, you can simplify it to 1:2 by dividing both numbers by 4 (GCD of 4 and 8).

What is the ratio of 18 to 24? The ratio of 18 to 24 can be simplified by finding the greatest common divisor (GCD) of 18 and 24, which is 6. Dividing both numbers by 6 yields the simplest form of the ratio: 18/6 : 24/6, which simplifies to 3:4.

What is the ratio of 3 and 12? The ratio of 3 and 12 can be simplified by finding the greatest common divisor (GCD) of 3 and 12, which is 3. Dividing both numbers by 3 yields the simplest form of the ratio: 3/3 : 12/3, which simplifies to 1:4.