Term Glossary

Metrics, Models & Concepts

Information Ratio

Information ratio (IR) is a ratio of portfolio returns above the returns of a benchmark (e.g. market index) to the volatility of those excess returns. \begin{equation} IR=\frac{E(\text{r}-r_{M})}{\sqrt{Var(r-r_{M})}} \end{equation}

asset return
market index (benchmark) return

The information ratio is often used to measures a portfolio manager's ability to generate excess returns relative to a benchmark. The higher the IR the more consistent a portfolio manager is.

Function Reference
portfolio_informationRatio, position_informationRatio