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Risk-Adjusted Return (Information Ratio) Calculator

Compute the information ratio from active return and tracking error to assess benchmark-relative performance.

Information Ratio Engine

Differentiate investment skill from market beta by measuring risk-adjusted active returns

Annualized Std Dev of Active Return

Performance Algebra

Information Ratio Formula

IR = (Rp - Rb) / σactive
p
Portfolio Portfolio annualized return
b
Benchmark annualized return
σ
Tracking Error (Sample Std Dev of active returns)

Deciphering the Inputs

Portfolio & Benchmark Return

These must be Annualized and Net of Fees. Most performance errors come from comparing a gross-of-fees portfolio to a net-of-fees index. Ensure apples-to-apples timeframe matching (e.g., both trailing 3-year).

Tracking Error (Active Risk)

This is not total volatility. It is the "wobble" around the benchmark. A fund that perfectly mimics the index has 0% Tracking Error, regardless of how volatile the market itself is.

"The Information Ratio is the truth serum of finance. It exposes managers who 'hit it big' once through leverage while performing poorly on a consistent risk-adjusted basis."

Strategic Performance Series

The Information
Ratio Masterclass

"Investing is a game of probability. The Information Ratio is the scorecard that tells you if your odds are actually in your favor."

Curated Syllabus

"Luck is what happens when preparation meets opportunity; Skill is making that luck consistent."

In asset management, luck is often mistaken for genius in bull markets. The Information Ratio (IR) is the tool designed to separate the two.

Active Skill vs. Market Beta

The **Information Ratio** differs from the Sharpe Ratio in its relative focus. While the Sharpe Ratio measures total return per unit of total risk, the Information Ratio measures **active return** per unit of **active risk**.

"Any manager can beat a benchmark by simply taking more market risk (Beta). IR ensures the beat came from specific asset selection or factor timing (Alpha)."

The IR Advantage

  • Benchmarking against specific mandates
  • Identifying 'Closet Indexers'
  • Evaluating active risk efficiency

The Benchmarks of Excellence

Quantitative research (notably by the pioneers at Wells Fargo Investment Advisors) has established the following thresholds for IR analysis over long cycles:

Below 0.0

Value Drain

Underperforming the benchmark despite active risk taking.

Pro Target

0.5 to 0.75

Top Tier Manager

Consistently beating the index through specific skill.

Above 1.0

Legendary Skill

Exceptional risk-adjusted alpha. Rarely sustained over 10+ years.

The Fundamental Law of Active Management

Richard Grinold proposed that a manager’s IR is determined by two factors: **Skill** (Information Coefficient) and **Breadth** (the number of independent bets made).

IR ≈ IC × √Breadth

This proves that even a moderate level of insight (low IC) can produce an exceptional Information Ratio if applied across many independent opportunities (high Breadth), a key principle behind modern Quantitative Hedge Funds.

Performance Audit: FAQ

Technical deep-dive for institutional analysis

Performance Analyst's Toolkit

Treynor Ratio

Beta-adjusted performance

Sortino Ratio

Downside risk focus

Tracking Error

Active deviation audit

Jensen's Alpha

Pure outperformance score

Quantitative Assessment Summary

"The Information Ratio is the definitive scorecard for active management. It reveals whether outperformance is a result of structural skill or erratic variance. In a world of market noise, the IR provides the signal."

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Risk-Adjusted Return (Information Ratio) Calculator

Compute the information ratio from active return and tracking error to assess benchmark-relative performance.

How to use Risk-Adjusted Return (Information Ratio) Calculator

Step-by-step guide to using the Risk-Adjusted Return (Information Ratio) Calculator:

  1. Enter your values. Input the required values in the calculator form
  2. Calculate. The calculator will automatically compute and display your results
  3. Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Risk-Adjusted Return (Information Ratio) Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Risk-Adjusted Return (Information Ratio) Calculator is designed to be user-friendly and provide instant calculations.

Is the Risk-Adjusted Return (Information Ratio) Calculator free to use?

Yes, the Risk-Adjusted Return (Information Ratio) Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Risk-Adjusted Return (Information Ratio) Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Risk-Adjusted Return (Information Ratio) Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.