Information Ratio
Definition
A measure of a portfolio manager's ability to generate excess returns relative to a benchmark, adjusted for the consistency of those returns.
Explanation
Information ratio = annualized alpha / tracking error. It measures how much active return a manager generates per unit of active risk taken. An IR of 0.50 is good, 0.75 is very good, and above 1.0 is exceptional and rare over sustained periods. Unlike the Sharpe Ratio (which uses total risk), the IR focuses specifically on the value added by active management decisions. A manager could have a low Sharpe Ratio (poor absolute returns) but a high IR (consistently adding value relative to their benchmark).
Formula
IR = (Rp - Rb) / Tracking Error
How Stoquity Uses This
Stoquity incorporates information ratio analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.
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