Information Ratio Calculator

What is Information Ratio (IR)?

The Information Ratio (IR) is a key financial metric used to evaluate the risk-adjusted returns of an investment portfolio relative to a benchmark index. It measures an investment manager's ability to generate excess returns relative to a benchmark while taking on tracking risk.

Information Ratio Formula

The Information Ratio is defined as the active excess return of a portfolio divided by its tracking error:

$$\text{Information Ratio} = \frac{R_p - R_b}{\text{Tracking Error}}$$

Where:

• $R_p$ is the rate of return of the portfolio.
• $R_b$ is the rate of return of the benchmark index.
• $\text{Tracking Error}$ is the standard deviation of the excess returns ($R_p - R_b$).

Interpreting Information Ratio Values

A higher Information Ratio indicates superior manager skill in achieving returns above the benchmark for a given level of risk:

• < 0.40: Weak performance or insufficient risk-adjusted excess return.
• 0.40 – 0.69: Good active management performance.
• 0.70 – 0.99: Very good risk-adjusted excess return.
• ≥ 1.00: Exceptional portfolio performance and active alpha generation.

Evaluate other performance metrics using our Effective Corporate Tax Rate tool or financial cost metrics with the After-Tax Cost of Debt.