matlab inforatio,Calculate information ratio for one or more assets

This example show how to calculate the tracking error using inforatio with example data, where the mean return of the market series is used as the return of the benchmark.

Given an asset or portfolio of assets and a benchmark, the relative standard deviation of returns between the asset or portfolio of assets and the benchmark is called tracking error.

load FundMarketCash

Returns = tick2ret(TestData);

Benchmark = Returns(:,2);

[InfoRatio, TrackingError] = inforatio(Returns, Benchmark)

InfoRatio = 1×3

0.0432 NaN -0.0315

TrackingError = 1×3

0.0187 0 0.0390

Tracking error, also know as active risk, measures the volatility of active returns. Tracking error is a useful measure of performance relative to a benchmark since it is in units of asset returns. For example, the tracking error of 1.87% for the fund relative to the market in this example is reasonable for an actively managed, large-cap value fund.