From dcae6af67bd49caaa61b74a73b992e487019498d Mon Sep 17 00:00:00 2001
From: Eddie Hebert <ehebert@quantopian.com>
Date: Wed, 9 Oct 2013 16:58:33 -0400
Subject: [PATCH] ENH: Annualize information ratio.

Use annualized values for information, so that it is calculated
using the same units as sharpe, etc.
---
 tests/risk/answer_key.py           |  7 ++++-
 tests/risk/test_risk_cumulative.py |  8 ++++++
 zipline/finance/risk/cumulative.py | 45 ++++++++++++++++++++++++++++--
 3 files changed, 56 insertions(+), 4 deletions(-)

diff --git a/tests/risk/answer_key.py b/tests/risk/answer_key.py
index cdd81e45..4366257a 100644
--- a/tests/risk/answer_key.py
+++ b/tests/risk/answer_key.py
@@ -238,6 +238,9 @@ class AnswerKey(object):
         'CUMULATIVE_SORTINO': DataIndex(
             'Sim Cumulative', 'V', 4, 254),
 
+        'CUMULATIVE_INFORMATION': DataIndex(
+            'Sim Cumulative', 'Y', 4, 254),
+
     }
 
     def __init__(self):
@@ -300,4 +303,6 @@ RISK_CUMULATIVE = pd.DataFrame({
     'downside_risk': pd.Series(dict(zip(
         DATES, ANSWER_KEY.CUMULATIVE_DOWNSIDE_RISK))),
     'sortino': pd.Series(dict(zip(
-        DATES, ANSWER_KEY.CUMULATIVE_SORTINO)))})
+        DATES, ANSWER_KEY.CUMULATIVE_SORTINO))),
+    'information': pd.Series(dict(zip(
+        DATES, ANSWER_KEY.CUMULATIVE_INFORMATION)))})
diff --git a/tests/risk/test_risk_cumulative.py b/tests/risk/test_risk_cumulative.py
index cd28218b..6fcf96ab 100644
--- a/tests/risk/test_risk_cumulative.py
+++ b/tests/risk/test_risk_cumulative.py
@@ -86,3 +86,11 @@ class TestRisk(unittest.TestCase):
                 value,
                 decimal=2,
                 err_msg="Mismatch at %s" % (dt,))
+
+    def test_information_06(self):
+        for dt, value in answer_key.RISK_CUMULATIVE.information.iterkv():
+            np.testing.assert_almost_equal(
+                self.cumulative_metrics_06.metrics.information[dt],
+                value,
+                decimal=2,
+                err_msg="Mismatch at %s" % (dt,))
diff --git a/zipline/finance/risk/cumulative.py b/zipline/finance/risk/cumulative.py
index 3957cf10..be59898e 100644
--- a/zipline/finance/risk/cumulative.py
+++ b/zipline/finance/risk/cumulative.py
@@ -27,7 +27,6 @@ from pandas.tseries.tools import normalize_date
 from . risk import (
     alpha,
     check_entry,
-    information_ratio,
     choose_treasury,
 )
 
@@ -86,6 +85,35 @@ def sortino_ratio(annualized_algorithm_return, treasury_return, downside_risk):
     return (annualized_algorithm_return - treasury_return) / downside_risk
 
 
+def information_ratio(algo_volatility, algorithm_return, benchmark_return):
+    """
+    http://en.wikipedia.org/wiki/Information_ratio
+
+    Args:
+        algorithm_returns (np.array-like):
+            All returns during algorithm lifetime.
+        benchmark_returns (np.array-like):
+            All benchmark returns during algo lifetime.
+
+    Returns:
+        float. Information ratio.
+    """
+    if zp_math.tolerant_equals(algo_volatility, 0):
+        return np.nan
+
+    return (
+        (algorithm_return - benchmark_return)
+        # The square of the annualization factor is in the volatility,
+        # because the volatility is also annualized,
+        # i.e. the sqrt(annual factor) is in the volatility's numerator.
+        # So to have the the correct annualization factor for the
+        # Sharpe value's numerator, which should be the sqrt(annual factor).
+        # The square of the sqrt of the annual factor, i.e. the annual factor
+        # itself, is needed in the numerator to factor out the division by
+        # its square root.
+        / algo_volatility)
+
+
 class RiskMetricsCumulative(object):
     """
     :Usage:
@@ -159,6 +187,8 @@ class RiskMetricsCumulative(object):
         self.benchmark_returns = None
         self.mean_returns = None
         self.annualized_mean_returns = None
+        self.mean_benchmark_returns = None
+        self.annualized_benchmark_returns = None
 
         self.compounded_log_returns = pd.Series(index=cont_index)
         self.algorithm_period_returns = pd.Series(index=cont_index)
@@ -215,6 +245,13 @@ class RiskMetricsCumulative(object):
         self.benchmark_returns_cont[dt] = benchmark_returns
         self.benchmark_returns = self.benchmark_returns_cont.valid()
 
+        self.mean_benchmark_returns = pd.rolling_mean(
+            self.benchmark_returns,
+            window=len(self.benchmark_returns),
+            min_periods=1)
+
+        self.annualized_benchmark_returns = self.mean_benchmark_returns * 252
+
         if self.create_first_day_stats:
             if len(self.benchmark_returns) == 1:
                 self.benchmark_returns = pd.Series(
@@ -417,8 +454,10 @@ algorithm_returns ({algo_count}) in range {start} : {end} on {dt}"
         """
         http://en.wikipedia.org/wiki/Information_ratio
         """
-        return information_ratio(self.algorithm_returns,
-                                 self.benchmark_returns)
+        return information_ratio(
+            self.metrics.algorithm_volatility[self.latest_dt],
+            self.annualized_mean_returns[self.latest_dt],
+            self.annualized_benchmark_returns[self.latest_dt])
 
     def calculate_alpha(self, dt):
         """