/**
* Copyright (C) 2009 - present by OpenGamma Inc. and the OpenGamma group of companies
*
* Please see distribution for license.
*/
package com.opengamma.analytics.financial.riskreward;
/**
* The information ratio is a measure of the risk-adjusted return of an asset
* that is defined as the expected active return (the excess return of an asset
* over that a benchmark portfolio) divided by the tracking error (the standard
* deviation of the active return).
* $$
* \begin{eqnarray*}
* IR = \frac{E[R_i - R_b]}{\sigma_i} = \frac{E[R_i - R_b]}{\sqrt{var[R_f - R_b]}}
* \end{eqnarray*}
* $$
* where $R_i$ is the asset return, $R_b$ is the benchmark return and
* $\sigma_i$ is the standard deviation of the active return.
*/
public class InformationRatioCalculator {
/**
* Calculates the information ratio
* @param assetReturn The return of the asset
* @param benchmarkReturn The return of the benchmark portfolio
* @param assetStandardDeviation The standard deviation of the returns of the asset
* @return The information ratio
*/
public double calculate(final double assetReturn, final double benchmarkReturn, final double assetStandardDeviation) {
return (assetReturn - benchmarkReturn) / assetStandardDeviation;
}
}