## Information Ratio

The Information Ratio (IR) is also known as the Appraisal Ratio. It is designed to evaluate how well an investor is compensated for the risk taken. The higher the Information Ratio the better the instrument’s performance. The main ingredients are current price and a prior price which are adjusted with the user defined benchmark return. The average and standard deviation (SD) are calculated; and the IR is the average, minus the benchmark return, divided by the SD. The user must select linear bars but may change the input (close), period length and benchmark value. This indicator’s definition is further expressed in the condensed code given in the calculation below.

### How To Trade Using the Information Ratio

The Information Ratio may be used to evaluate a instrument’s performance. No trading signals are calculated.

### How To Access in MotiveWave

Go to the top menu, choose Study>Performance>Information Ratio

or go to the top menu, choose Add Study, start typing in this study name until you see it appear in the list, click on the study name, click OK.

Important Disclaimer: The information provided on this page is strictly for informational purposes and is not to be construed as advice or solicitation to buy or sell any security. Please see our Risk Disclosure and Performance Disclaimer Statement.

### Calculation

//input = price, user defined, default is close
//period = p1, user defined, default is 30
//benchmark return = bmk, user defined, default is 5 percent
//sma = simple moving average, sdDev = standard deviation
//index = current bar number

```BarSize bar = getBarSize();
if (bar.getType() == BarSizeType.LINEAR) barMin = bar.getInterval();
else return;
minPerYr = 60*24*30*12;
priorP = price[index-p1];
bmk = bmk /100;  //convert percent to decimal
barsPerYr = minPerYr/barMin;
bench = Math.pow((1 + (bmk)), p1/barsPerYr) - 1; //minium acceptable return/period compounded
ret = (price/priorP)-1;
av  = sma(index, p1, RET);
std = sdDev(index, p1, RET)[0];
Plot: info = (av - bench) / std;```