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Active return (alpha) divided by tracking error against a benchmark.
Active return (alpha) divided by tracking error against a benchmark.
The Information Ratio measures the consistency of a portfolio manager's excess return relative to a benchmark. It is the standard metric for evaluating active management skill in institutional asset allocation and is widely used in manager selection, fund-of-funds construction, and equity long/short strategies.
An IR above 0.5 is considered good; above 1.0 is excellent for active management.
Combines alpha generation skill with implementation discipline (low tracking error).
Annualized by multiplying the per-period IR by the square root of periods per year.