## DEFINITION of 'Batting Average'

An investment manager's "batting average" is a statistical technique used to measure a manager's ability to meet or beat an index. A batting average is calculated by dividing the number of days (or months, quarters, etc.) in which the manager beats or matches the index by the total number of days (or months, quarters, etc.) in the period of question and multiplying that factor by 100.

The higher the batting average, the better. The highest number possible average would be 100%, meaning the manager outperformed the benchmark every single period. In contrast, a batting average of 0%, means the manager never once outperform their benchmark. Often, a batting average of 50% is used as a minimum threshold for measuring investment success.

Next Up

## BREAKING DOWN 'Batting Average'

An investment manager who outperforms the market in 15 out of a possible 30 days would have a statistical batting average of 50. The longer the period taken in the sample size, the more statistically significant the measure becomes. Many analysts use this simple calculation in their broader assessments of individual investment managers.

The information ratio (IR) is a similar measure of success (or failure) of money managers. It, however, does not easily string together a series of success or failures, which are helpful when assessing final investment outcomes. The batting average overcomes this shortcoming by answering: Does an investment manager win or lose most investment bets?

The information ratio and the batting average are two commonly quoted measures of investment success, but these measures have shortcomings: The IR contains no information about higher moments, and the batting average contains only directional information.

## Limitations of Batting Average

More specifically, the batting average suffers from two primary limitations. First, batting average focuses only on returns and does not take into consideration the level of risk taken by a manager in achieving returns. Second, batting average does not factor in the scale of any potential outperformance. A manager might outperform the benchmark by, say, 0.1% for 10 months, but in the 11th month fall short of the benchmark by 3.50%. In such a case the batting average would be 90.90%, but the manager would have dramatically underperformed their benchmark — and now, investors are getting nervous.

RELATED TERMS
1. ### Better Alternative Trading System ...

The Better Alternative Trading System (BATS) is a U.S.-based ...
2. ### Basic Attention Token

Basic Attention Token (or BAT) fuels the Brave browser, which ...
3. ### Benchmark

A benchmark is a standard against which the performance of a ...
4. ### Information Ratio (IR)

The information ratio is a ratio of portfolio returns beyond ...
5. ### Active Management

Active management consists of a human overseer or group making ...
6. ### Active Return

Active return is the percentage gain or loss of an investment ...
Related Articles
1. Insurance

### Why BATS Killed Its IPO

There have been several successful IPOs, however this isn't one of them.
2. Personal Finance

### Jump Start Your Financial Career With The BAT

The BAT is quickly becoming known in the job market as a tool to provide a window into the minds of those seeking financial jobs.
3. Insurance

### Famously Disappointing IPOs

IPOs may seem like an enticing and exciting investment, but history suggests that IPOs are far from a sure thing.
4. Investing

### Trump Tax Plan Could Impact Reynolds-BAT Megadeal

Proposed tax cuts and protectionist policies could boost Reynolds American before its takeover.
5. Investing

### BAT: High Demand for Glo No-Burn Tobacco in Japan

As smoking rates decline, tobacco companies foresee a phase-out of their flagship product.
6. Investing

### Tobacco Giants Push New ‘Alternative Products’

As many quit cigarettes, firms such as BAT are creating new products 'across the harm spectrum.'
7. Insights

### Why is the SEC Afraid of Bitcoin ETFs?

The SEC denied several Bitcoin ETF applications in the last few weeks. Why?
8. Investing

### Benchmark To Show Winning Returns

You can't win if you don't keep score. Read on to learn how to measure your returns.
RELATED FAQS
1. ### What is the difference between a sharpe ratio and an information ratio?

Understand the meaning of the Sharpe ratio and the information ratio, and understand how they differ as tools for evaluating ... Read Answer >>
2. ### What are the main disadvantages of using Moving Averages (MA)?

Learn about some of the inherent limitations and possible misapplications of moving average analysis within technical stock ... Read Answer >>

4. ### What is the difference between a simple moving average and an exponential moving ...

The only difference between simple moving average and an exponential moving average is the sensitivity each one shows to ... Read Answer >>
Hot Definitions
1. ### Yield Curve

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
2. ### Portfolio

A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
3. ### Gross Profit

Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
4. ### Diversification

Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
5. ### Intrinsic Value

Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
6. ### Current Assets

Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...