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Information Ratio Calculator.

Calculate active return divided by tracking error.

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Information ratio: 0.8

Information ratio

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FAQs

How does the information ratio calculator work?

Enter the requested values to see a deterministic result. Assumptions are explicit and no live market or tax data is fetched.

Use Cases

Evaluate portfolio manager performance

Use the information ratio to assess how consistently a manager outperforms a benchmark relative to the risk taken. It helps in comparing different managers or strategies.

Example: Compare two mutual funds by calculating their information ratios over the past 3 years.

Optimize investment strategy

Investors can use the information ratio to refine their investment approach by identifying strategies that deliver higher active returns per unit of tracking error.

Example: Adjust asset allocation to improve the information ratio of a portfolio.

Frequently Asked Questions

What is the information ratio and how is it calculated?
The information ratio measures a portfolio's active return (the difference between portfolio and benchmark returns) relative to its tracking error (the volatility of that difference). It is calculated by dividing active return by tracking error. A higher ratio indicates more consistent outperformance.
What is a good information ratio?
Generally, an information ratio above 0.5 is considered good, above 0.75 is very good, and above 1.0 is exceptional. However, the interpretation can vary by investment strategy and market conditions. This calculator helps you compute the ratio for your specific data.
How can I use this calculator for my portfolio?
Enter your portfolio's returns and the benchmark's returns over the same period. The calculator will compute the active return, tracking error, and information ratio, helping you evaluate whether your manager's performance justifies the risk taken.

Tips & Common Mistakes

Tips

  • Ensure you use the same time period for both portfolio and benchmark returns to get an accurate information ratio.
  • Use annualized returns and tracking error for a standardized comparison across different periods.
  • A negative information ratio indicates underperformance relative to the benchmark; investigate the causes before making decisions.
  • Combine the information ratio with other metrics like the Sharpe ratio for a comprehensive risk-adjusted performance analysis.

Common Mistakes to Avoid

  • Using different time periods for portfolio and benchmark returns, which skews the active return and tracking error.
  • Confusing tracking error with standard deviation of returns; tracking error is the standard deviation of the active return.
  • Ignoring the impact of outliers or extreme returns, which can distort the information ratio.

Last updated: August 13, 2026