Information Ratio Calculator

Measures active manager skill vs benchmark.

How the Math Works

The Information Ratio measures risk-adjusted active return by comparing an investment's excess return relative to a benchmark to the volatility of those returns. Calculated as the active return (portfolio return minus benchmark return) divided by the tracking error (standard deviation of the active returns), this ratio quantifies how efficiently a portfolio manager generates returns per unit of relative risk. A higher Information Ratio indicates better risk-adjusted performance relative to the chosen benchmark, while negative values suggest underperformance.

Practical Applications

Use this calculator to evaluate portfolio managers by comparing their returns against a relevant benchmark index while accounting for the consistency of those returns. Input your portfolio's periodic returns and the benchmark's returns to determine if outperformance comes with excessive volatility or if returns are consistently generated with minimal tracking error. This metric is particularly useful for institutional investors assessing fund managers and for comparing different active investment strategies on a standardized risk-adjusted basis.

Day-to-Day Use

Understanding your Information Ratio helps you make smarter investment decisions by revealing whether your portfolio's performance justifies its risk relative to market benchmarks. If you're managing personal investments, this calculation tells you if your advisor's active decisions are genuinely adding value or simply taking on unnecessary risk. For everyday investors, it's the difference between chasing hot returns and building wealth steadily through consistently skilled management.

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