please explain
The information ratio is a measure of relative expected or realized reward to risk, whereas the Sharpe ratio measures the absolute risk–return trade-off of a portfolio.
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Information ratio= Active return/Active risk
is a relative measure of your risk adjusted performance. Here relative means that it measures your excess returns against a specific benchmark like the S&P 500 etc.
Sharpe ratio on the other hand is an absolute measure of your risk adjusted performance. It also measures the excess return per unit of risk but does not measure against a specific benchmark. It simply shows excess return over and above Rf and Rf is not a benchmark. Thus, it is not being compared to any benchmark and is an absolute measure and not a relative measure.
but in the both of them the actual return is being COMPARED to eithe benchmark or Rf
and comparison leads to relative terms.
am i correct?
Rf cannot be considered as a benchmark. Benchmark is something with which we can compare our performance. Rf is just the risk-free rate. If you are comparing your equity returns portfolio with Rf, then this is not an appropriate comparison. Ofcourse, it is very very easy to earn more than Rf in the equity market but your performance in equity market cannot be compared to Rf, its not a relevant comparison. Your equity returns portfolio should be compared with an equity market index like the S&P 500, Nifty, Sensex etc. It should be an apple to apple comparison.