Some analysts, however, do use Jensen's alpha for the numerator and a regression-adjusted tracking error for the denominator ( this version of the information ratio is often described as the appraisal ratio to differentiate it from the more common definition ).
12.
The Capital Asset Pricing Model ( CAPM ) developed by Sharpe ( 1964 ) highlighted the notion of rewarding risk and produced the first performance indicators, be they risk-adjusted ratios ( Sharpe ratio, information ratio ) or differential returns compared to benchmarks ( alphas ).
13.
The information ratio is often used to gauge the skill of managers of mutual funds, hedge funds, etc . In this case, it measures the active return of the manager's portfolio divided by the amount of risk that the manager takes relative to the benchmark.
14.
Since the denominator is here taken to be the annualized standard deviation of the arithmetic difference of these series, which is a standard measure of annualized risk, and since the ratio of annualized terms is the annualization of their ratio, the annualized information ratio provides the annualized risk-adjusted active return of the portfolio relative to the benchmark.
15.
The Sharpe ratio is similar to the Information ratio but, whereas the Sharpe ratio is the'excess'return of an asset over the return of a risk free asset divided by the variability or standard deviation of returns, the information ratio is the active return to the most relevant benchmark index divided by the standard deviation of the'active'return or tracking error.
16.
The Sharpe ratio is similar to the Information ratio but, whereas the Sharpe ratio is the'excess'return of an asset over the return of a risk free asset divided by the variability or standard deviation of returns, the information ratio is the active return to the most relevant benchmark index divided by the standard deviation of the'active'return or tracking error.
17.
The information ratio is similar to the Sharpe ratio but, whereas the Sharpe ratio is the'excess'return of an asset over the return of a risk free asset divided by the variability or standard deviation of returns, the information ratio is the'active'return to the most relevant benchmark index divided by the standard deviation of the'active'return or tracking error.
18.
The information ratio is similar to the Sharpe ratio but, whereas the Sharpe ratio is the'excess'return of an asset over the return of a risk free asset divided by the variability or standard deviation of returns, the information ratio is the'active'return to the most relevant benchmark index divided by the standard deviation of the'active'return or tracking error.
