Glossary term
Information Ratio
Active return per unit of tracking error; the benchmark-relative cousin of the Sharpe Ratio, measuring consistency of outperformance.
The Information Ratio measures a strategy's active return — its performance above a benchmark — per unit of tracking error, the volatility of that active return. It is the benchmark-relative cousin of the Sharpe Ratio, rewarding managers who beat their benchmark consistently rather than sporadically. A high information ratio signals durable skill in adding value over a passive alternative. See Sharpe Ratio and Reference Portfolio 101.