Simple analytical tools such as ratios play an important role in measuring performance. For instance, investors often look to risk-adjusted performance measures when analyzing investment alternatives. One such metric, the Sharpe Ratio, measures a fund's excess return per unit of risk. The higher the Sharpe Ratio, the better the risk-adjusted performance. Another risk adjustment measure, the Information Ratio, is calculated as a fund's average excess return divided by the standard deviation of the excess return.

The T Ratio- An Information Ratio for Transition Events