Portfolio Risk & Return

Information Ratio

How consistently a portfolio beats its benchmark. It takes the return above the benchmark (the S&P 500, for example) and divides it by tracking error — how far, and how erratically, the portfolio’s returns stray from the benchmark’s. A positive figure means the portfolio beat its benchmark; a high one means it did so steadily rather than through one lucky stretch. Professionals use it to judge whether a manager’s departures from the index were worth making, and they treat a sustained reading of 0.5 as good and 1.0 as exceptional. Read it with care over short windows: a year or two of beating the benchmark can produce a flattering number that does not last.

Educational information, not investment advice. See it applied across the screener →