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ACTIVE RETURN / TRACKING ERROR

Information Ratio Calculator

Compare annualized active return with annualized tracking error. Review the entered period, benchmark, and risk assumptions alongside the result.

  • 01 Calculated in this tab
  • 02 Values stay in this browser tab
  • 03 Use boundary

Conversion input

Known value

Filter by unit name, symbol, or code. Your current selections remain available.

Scenario inputs

Preparing the calculator...

METHOD / WORKED EXAMPLE

Keep the benchmark and tracking error aligned

The information ratio evaluates active return relative to active-return variability, making benchmark choice and matching measurement conventions part of the calculation rather than optional context.

WORKED DEFAULT

Check the calculation with the default inputs

With an 11% portfolio return, 8% benchmark return, and 4% annualized tracking error, active return is 3 percentage points and the information ratio is 0.75.

  1. Calculate active return11% - 8% = 3%
  2. Confirm active riskTracking error = 4%
  3. Normalize3 / 4 = 0.75

READ THE RESULT

Interpret the output in context

Positive values indicate outperformance in the supplied period; the magnitude becomes comparable only when portfolios use appropriate benchmarks and the same return, fee, and annualization policies.

ASSUMPTIONS AND LIMITS

Know where the model stops

  • Portfolio and benchmark returns cover identical dates.
  • Tracking error is derived from the corresponding active-return series.
  • All inputs use compatible annualization and fee conventions.

A single ratio does not establish manager skill; benchmark fit, fees, sampling, and the full active-return distribution require review.

CFA Institute: risk-adjusted performance measures

COMMON QUESTIONS

Information Ratio Calculator FAQs

Can I use volatility instead of tracking error?

No. Total portfolio volatility measures dispersion around the portfolio's own average return, while tracking error measures dispersion of portfolio returns relative to benchmark returns. Substituting volatility changes the question and effectively creates a different performance ratio. Build active returns for matching observations, estimate their standard deviation, annualize consistently, and document whether returns are gross or net of fees.

What happens when active return is negative?

The information ratio becomes negative when the portfolio underperforms the benchmark over the entered period. That sign is informative, but it does not explain why underperformance occurred or whether the benchmark was appropriate. Attribution, holdings, fees, cash flows, constraints, and the distribution of active returns are needed before drawing conclusions about a strategy or manager.

Why does benchmark selection matter so much?

Both parts of the ratio depend on the benchmark. Changing it alters active return and every observation used to estimate tracking error. A broad market index may be unsuitable for a concentrated sector, duration target, currency exposure, or factor mandate. Use the benchmark specified by the investment objective, and disclose any benchmark change before comparing periods or managers.

Use boundary

Calculation path

Subtract benchmark return from portfolio return and divide by annualized tracking error measured from active returns.

Calculation path

Information ratio = (portfolio return - benchmark return) / tracking error.