Information Ratio Calculator
The information ratio (IR) is a key metric used to evaluate active portfolio managers. It measures how much excess return (active return) a manager generates relative to a benchmark per unit of active risk (tracking error). A consistent manager with a high IR demonstrates skill in generating alpha without taking excessive benchmark-relative risk. You can enter up to five periods of portfolio and benchmark returns. The calculator computes average active return, tracking error (standard deviation of active returns), and the resulting information ratio.
Information ratio formula
Active return(t) = Portfolio return(t) - Benchmark return(t)
Mean active return = average of all active returns
Tracking error = standard deviation of active returns
IR = mean active return / tracking error
Tracking error uses the sample standard deviation (dividing by n-1) when calculated from historical periods. A positive IR means the manager outperformed on a risk-adjusted basis; negative means underperformance.
Interpreting the information ratio
- IR above 0.5: generally considered competent active management.
- IR above 1.0: strong evidence of skill; difficult to sustain over long periods.
- IR below 0: manager underperformed the benchmark on a risk-adjusted basis; passive indexing would have been better.
- The IR requires multiple periods to be meaningful; a single period result is not statistically significant.
- The SEC requires mutual fund performance relative to benchmarks to be disclosed in annual reports and fund filings.
Frequently asked questions
What is the information ratio?
The information ratio (IR) measures the consistency of a portfolio manager's ability to generate excess returns above a benchmark, adjusted for the risk taken to achieve those returns. IR = active return / tracking error. A higher IR indicates a more skilled manager.
What is active return?
Active return (also called alpha) is the portfolio's return minus the benchmark's return over the same period. For example, if a portfolio returns 10% and the benchmark returns 8%, active return is 2%.
What is tracking error?
Tracking error is the standard deviation of the active return (portfolio return minus benchmark return) over multiple periods. A high tracking error means the portfolio's performance varies significantly from the benchmark each period.
What is a good information ratio?
An IR above 0.5 is generally considered good, above 1.0 is excellent, and above 2.0 is exceptional and rare. Negative IR means the manager underperformed the benchmark after risk adjustment.
How is the information ratio different from the Sharpe ratio?
The Sharpe ratio measures excess return over the risk-free rate divided by total portfolio volatility. The information ratio measures excess return over a benchmark divided by tracking error (the volatility of that excess return). IR focuses on active management skill; Sharpe focuses on total risk efficiency.
Official sources
- SEC: How to Read a Mutual Fund Prospectus.
- Federal Reserve FRED: Economic Data for Benchmark Returns.
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.