InformationRatio = ActivePremium/TrackingError

The Active Premium divided by the Tracking Error.

Usage

InformationRatio(Ra, Rb, scale = NA, ...)

Arguments

Ra: an xts, vector, matrix, data frame, timeSeries or zoo object of asset returns
Rb: return vector of the benchmark asset
scale: number of periods in a year (daily scale = 252, monthly scale = 12, quarterly scale = 4)
...: any other passthru parameters to ActivePremium and Return.annualized (e.g., geometric=FALSE)

Details

InformationRatio = ActivePremium/TrackingError

This relates the degree to which an investment has beaten the benchmark to the consistency with which the investment has beaten the benchmark.

Note

William Sharpe now recommends InformationRatio preferentially to the original SharpeRatio.

References

Sharpe, W.F. The Sharpe Ratio,Journal of Portfolio Management,Fall 1994, 49-58.

Author

Peter Carl

Examples


data(managers)
InformationRatio(managers[,"HAM1",drop=FALSE], managers[, "SP500 TR", drop=FALSE])
#> [1] 0.3604125
InformationRatio(managers[,1:6], managers[,8,drop=FALSE])
#>                                  HAM1      HAM2      HAM3     HAM4      HAM5
#> Information Ratio: SP500 TR 0.3604125 0.5059751 0.4701009 0.154914 0.1212162
#>                                  HAM6
#> Information Ratio: SP500 TR 0.6722844
InformationRatio(managers[,1:6], managers[,8:7])
#>                                     HAM1      HAM2      HAM3       HAM4
#> Information Ratio: SP500 TR    0.3604125 0.5059751 0.4701009  0.1549140
#> Information Ratio: EDHEC LS EQ 0.2593770 0.4162701 0.1279329 -0.0294821
#>                                      HAM5      HAM6
#> Information Ratio: SP500 TR     0.1212162 0.6722844
#> Information Ratio: EDHEC LS EQ -0.2277438 0.9667207