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Information Ratio - Appraisal ratio

by Brian Brown, 1043 days ago
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The Information ratio also called Appraisal ratio is a ratio of a portfolio (or asset) returns above the returns of an index (or benchmark) to the volatility of the returns.

The IR (Information Ratio) is similar to the Sharpe ratio since it is used to measure risk-adjusted returns. The difference is that instead of calculating the difference between the portfolio return and the risk-free rate of return, the IR measures the difference between the portfolio return and the index return. The risk calculation is also a little bit different since the standard deviation is applied to the return difference between the portfolio and the index instead of the portfolio's return only.

The information ratio also tells you whether the asset or portfolio have beaten the market with consistency or not. The higher the value the more consistent the asset or the portfolio has beaten the market.

Example of usage:
a = InformationRatio(name(), "SPY", 20);
plot(a, "Information ratio", colorGreen);

The first parameter gets the asset to analyze (name() will get the currently selected asset).
The second parameter gets the index name.
Finally, the third parameter gets the lookback period.


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