Hi, That’s probably a rather straigh forward question, but I don’t have the answer. So, if I do E® / St. dev. = X , what would be the name of that ratio. That’s not the information ratio - or is it?
information ratio = (Rp-Rb)/ st.dev of rp-rb p = portfolio b = benchmark it’s excess return adjusted for standard deviation of excess return or active return / active risk your calculation simply says how much return you get per 1 unit of risk I don’t know if it has a name or not
I dont think that this ratio has any specific name. Information ratio is the active return over the active risk, as far as i remember. Sharpe ratio and Roys safety first both subtract a return threshold from risk.
Cool. Thanks. Ok, so from now on, the above ratio is to be referred to as the Olivier ratio (Copyrighted)
olivier Wrote: ------------------------------------------------------- > Cool. Thanks. > > Ok, so from now on, the above ratio is to be > referred to as the Olivier ratio (Copyrighted) Nice! Roy’s Safety First: (Expected Return - Min. Acceptable Return) / Std Dev. Sharpe Ratio: (Expected Return - RFR) / Std. Dev Information ratio: Active Return / Active Risk But, Information Ratio also = Information Coefficient * Sq Root of Breadth Anyone care to explain to me why there are two information ratios?
olivier Wrote: ------------------------------------------------------- > Hi, > > That’s probably a rather straigh forward question, > but I don’t have the answer. > > So, if I do E® / St. dev. = X > , what would be the name of that ratio. That’s not > the information ratio - or is it? I think some people just call it risk adjusted returns.
IR is saying how much alpha do you generate based on the alpha risk. IC basically shows how your returns are correlated to your decisions. breadth is your independent decisions. IR approximately equals IC* square root of breadth which means given how many decisions you make and how accurate those decisions are, you can generate an approximate amount of alpha for a given alpha risk.
Bankin’ Wrote: > But, Information Ratio also = Information > Coefficient * Sq Root of Breadth This formula is the fundamental law of active management (not definition).
olivier Wrote: ------------------------------------------------------- > Hi, > > That’s probably a rather straigh forward question, > but I don’t have the answer. > > So, if I do E® / St. dev. = X > , what would be the name of that ratio. That’s not > the information ratio - or is it? This is the coefficient of variation, more used in statistics i believe.