Information ratio
Return above a benchmark per unit of tracking error.
Formula
Information ratio = Excess return over benchmark ÷ Tracking error
How to read it
Higher is better: it asks whether beating the index was consistent or the product of a few lucky days.
How to use it
Judges an active strategy against the benchmark it is meant to beat: consistency of the out-performance, not its size.
Limitations
Only as meaningful as the benchmark is appropriate.
In Kereon
Portfolio. The daily difference between portfolio and benchmark returns: its mean × 252 ÷ its standard deviation × √252.
Also called: information ratio, info ratio.