---
title: "Information Ratio | Altss Glossary"
description: "Information Ratio measures active return per unit of active risk, commonly (Portfolio − Benchmark) ÷ Tracking Error."
canonical: "https://altss.com/glossary/information-ratio"
---

Fund Economics

# Information Ratio

Publisher: Altss LLCPublished 2026-01-12Content modified 2026-01-18

Information Ratio measures active return per unit of active risk, commonly (Portfolio − Benchmark) ÷ Tracking Error.

**Allocator relevance:** High — core metric for benchmark-aware mandates, testing whether excess returns are earned efficiently.

**Expanded Definition**
Information Ratio evaluates how consistently a manager generates returns relative to a benchmark, scaled by tracking error (active volatility). It is sensitive to benchmark choice, time period, and stability of the manager’s process. Allocators treat benchmark integrity as central: a mismatched benchmark can manufacture a high Information Ratio without genuine skill.

**Decision Authority & Governance**
Governance includes benchmark policy, style drift controls, consistent time windows, and transparent calculation notes. Allocators expect managers to disclose benchmark rationale, show multi-period IR, and avoid cherry-picked intervals.

**Common Misconceptions**

- High IR means low risk overall.

- Any benchmark is acceptable.

- IR is stable across regimes.

**Key Takeaways**

- Information Ratio is skill efficiency relative to a benchmark.

- Benchmark choice determines whether IR is meaningful.

- Use alongside drawdown and qualitative diligence.

## Related terms

[Tracking Error](https://altss.com/glossary/tracking-error)[Alpha](https://altss.com/glossary/alpha)[Beta](https://altss.com/glossary/beta)[Benchmark](https://altss.com/glossary/benchmark)[Style Drift](https://altss.com/glossary/style-drift)

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