FRM Glossary · Part I · Investment

Information Ratio (IR)

Active return divided by tracking error — the risk-adjusted performance measure for active managers vs a benchmark.

In more detail

IR = (R_p − R_b) / σ(R_p − R_b). A high IR reflects consistent alpha generation. The IR is to active management what the Sharpe is to absolute-return investing. Typical benchmarks: a good institutional equity manager targets IR > 0.5.