What does the information ratio measure?
The information ratio (IR) is a measurement of portfolio returns beyond the returns of a benchmark, usually an index, compared to the volatility of those returns. The benchmark used is typically an index that represents the market or a particular sector or industry.
What is a good information ratio?
The higher the information ratio, the better. Generally speaking, an information ratio in the 0.40-0.60 range is considered quite good. Information ratios of 1.00 for long periods of time are rare.
Is information ratio same as Sharpe ratio?
The information ratio is similar to the Sharpe ratio, the main difference being that the Sharpe ratio uses a risk-free return as benchmark (such as a U.S. Treasury security) whereas the information ratio uses a risky index as benchmark (such as the S&P500).
What is information ratio in mutual funds?
Definition: Information ratio shows the consistency of the fund manager in generating superior risk adjusted performance. A higher information ratio shows that fund manager has outshined other fund managers and has delivered consistent returns over a specified period.
What is breadth in information ratio?
The active manager produces Information Ratio (IR), which is a measure of the value added per unit of risk. His skill in producing IR is defined by the Information Coefficient (IC)2 , and the extent to which he applies his skill is termed Breadth, which is defined as the number of independent signals he derives.
What is a bad information ratio?
If the information ratio of a mutual fund is negative, it indicates that the mutual fund manager was unable to produce any excess returns at all. An information ratio of less than 0.4 means that the mutual fund could not produce excess returns for a sufficiently long time and the fund may not be a good investment.
How do you interpret tracking errors?
Tracking error is the standard deviation of the difference between the returns of an investment and its benchmark. Given a sequence of returns for an investment or portfolio and its benchmark, tracking error is calculated as follows: Tracking Error = Standard Deviation of (P – B)
Why is ratio information useful?
Information Ratio measures the fund’s performance relative to its benchmark and adjusts it for the volatility in dispersion. This will help you identify funds that can deliver results consistently for years rather than in spurts. Here, measures of risk-adjusted performance prove useful.
What is a bad Information Ratio?
What is capture ratio?
The down-market capture ratio is a statistical measure of an investment manager’s overall performance in down-markets. The ratio is calculated by dividing the manager’s returns by the returns of the index during the down-market and multiplying that factor by 100.
What does IC mean in math?
Information Coefficient
Information Coefficient (IC) Definition.
What is a good tracking error?
Theoretically, an index fund should have a tracking error of zero relative to its benchmark. Enhanced index funds typically have tracking errors in the 1%-2% range. Most traditional active managers have tracking errors around 4%-7%.
Generally speaking, an information ratio in the 0.40-0.60 range is considered quite good. Information ratios of 1.00 for long periods of time are rare. Typical values for information ratios vary by asset class.
What is the information ratio?
The information ratio (IR) measures a portfolio manager’s ability to generate excess returns relative to a benchmark, but also attempts to identify the consistency of the portfolio manager.
How does the Sharpe ratio differ from the information ratio?
Both ratios determine the risk-adjusted returns of a security or portfolio. However, the information ratio measures the risk-adjusted returns relative to a certain benchmark while the Sharpe ratio compares the risk-adjusted returns to the risk-free rate.
What is Information Ratio (IR)?
What Is the Information Ratio – IR? The information ratio (IR) is a measurement of portfolio returns beyond the returns of a benchmark, usually an index, compared to the volatility of those returns. The benchmark used is typically an index that represents the market or a particular sector or industry.