Plain-English definitions, reviewed by an independent investor
Information Ratio
The information ratio measures excess return per unit of tracking error versus a benchmark.
The information ratio measures excess return per unit of tracking error versus a benchmark.
IR = (Portfolio Return − Benchmark) ÷ Tracking Error
Why it matters
It judges whether active management earned its keep.
Common confusion
A high IR means consistent outperformance, not just lucky one-offs.
Frequently Asked Questions
Good information ratio?
Above 0.5 is decent active management; above 1 is strong.
IR vs alpha?
Alpha is the raw excess; IR scales it by how consistently it was earned.