Information Ratio

The Information Ratio measures a fund’s return in excess of its benchmark (active return) divided by the standard deviation of the active return (tracking error). The information ratio is a synthetic indicator which allows comparing accounts with active management, whatever their reference benchmarks and their objectives of investment are. It measures the added value of the manager per unit of relative risk.

Where:
Rp – portfolio return
Rb – benchmark return
TE – tracking error

Share this article