The Sharpe Ratio and the Information Ratio

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Investment Performance Measurement Feature Articles
July 2011 | Vol. 2011 | No. 1 | 4 pages
Source: CFA Institute
Deborah Kidd, CFA

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Summary

The Sharpe ratio and the information ratio are routinely used in performance assessment; they are among the original risk-adjusted performance measures. Though they are simple metrics, practitioners should take care not to use them naively. This article highlights shortcomings of the two ratios and provides a framework for evaluating each ratio each within the appropriate context.

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