Measure the consistency of a portfolio's excess return against its benchmark: IR = (Rp − Rb) ÷ tracking error.
Information ratio (IR) divides active return (the difference between portfolio and benchmark returns) by tracking error (the standard deviation of that active return). The result shows how much average excess return is generated for each unit of active risk taken.
Verified example: a portfolio grows 12% and the benchmark 8% with 4% tracking error, so active return = 12 − 8 = 4% and IR = 4 ÷ 4 = 1.000. That means each unit of tracking error generates average excess return of 1.000.
Convention used: tracking error = sample standard deviation (denominator n−1) of per-period active return. Annualization of periodic data uses the square-root factor of the number of periods per year (daily 252, monthly 12, quarterly 4, annual 1).
Paste per-period returns, one line per period, in Rp,Rb format
(separate with a comma, semicolon, or space; decimal commas are supported when the separator is a semicolon).
At least 2 periods.
Enter the target IR and the two known variables, then choose which variable to solve for.
Compare the information ratios of two portfolios/managers against their respective benchmarks. This comparison is descriptive: it shows who generates more excess return per unit of tracking error, not a recommendation of which one to pick.
| A | B | |
|---|---|---|
| Active return | - | - |
| Tracking error | - | - |
| Information ratio | - | - |
The information ratio (IR) is a risk-adjusted measure of portfolio performance. Its formula: IR equals active return divided by tracking error. Active return is the difference between portfolio return and benchmark return, while tracking error is the standard deviation of that active return. IR describes how much excess return is generated for each unit of active risk taken relative to the benchmark.
IR = (Rp minus Rb) divided by TE. Rp is the portfolio return, Rb is the benchmark return, and TE is the tracking error, i.e. the sample standard deviation of the per-period active return series. When computed from monthly data, the annualized result is obtained by multiplying the monthly IR by the square root of 12. In this calculator, annualization uses the square-root factor of the number of periods per year: 252 for daily, 12 for monthly, 4 for quarterly, and 1 for annual.
Both measure return per unit of risk, but they use different references. The Sharpe ratio uses the risk-free return as the reference, so it measures absolute portfolio performance. The information ratio uses a risky benchmark, such as a stock index, as the reference, so it measures the relative performance of active management. The two complement each other and cannot replace one another.
A positive IR means average active return is positive: the portfolio generated excess return above the benchmark per unit of tracking error over the data period. A negative IR means average active return is negative: the portfolio lagged the benchmark. An IR near zero means average active return is small relative to its volatility, so the performance gap may be mere statistical noise. The farther the value from zero, the larger the average active return per unit of active risk. This calculator does not label results good or bad, because performance assessment always depends on the benchmark context and the data period.
Tracking error is the standard deviation of active return — a measure of how far portfolio returns deviate from benchmark returns over time. A small tracking error means the portfolio moves closely with the benchmark, while a large tracking error means its management deviates more actively from the benchmark, whether in a favorable or unfavorable direction.
First, the result depends heavily on benchmark choice: an irrelevant benchmark makes IR misleading. Second, IR uses only mean and standard deviation, so it does not capture asymmetric risk patterns. Third, short data makes tracking error estimates unstable. Fourth, IR can look high merely because tracking error is tiny, not because excess return is large. IR should therefore be read alongside other metrics and a sufficiently long track record.
The information ratio is a statistical tool for evaluating historical performance relative to a benchmark, not an investment recommendation. Past performance does not guarantee future results. This calculator is educational and is not investment advice. For real fund decisions, discuss them with a licensed financial advisor who understands your risk profile.
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