what is the information ratio ir 
the information ratio ir is a measurement of portfolio returns beyond the returns of a benchmark usually an index compared to the volatility of those returns the benchmark used is typically an index that represents the market or a particular sector or industry the ir is often used as a measure of a portfolio manager s level of skill and ability to generate excess returns relative to a benchmark but it also attempts to identify the consistency of the performance by incorporating a tracking error or standard deviation component into the calculation the tracking error identifies the level of consistency in which a portfolio tracks the performance of an index a low tracking error means less volatility in tracking the benchmark and a lower likelihood of incurring costs from a volatile performance a high tracking error means that the portfolio returns are more volatile over time and not as consistent with the benchmark s performance formula and calculation of the information ratio ir although compared funds may be different in nature the ir standardizes the returns by dividing the difference in their performances known as their expected active return by their tracking error ir portfolio return benchmark return tracking error where ir information ratio portfolio return portfolio return for period benchmark return return on fund used as benchmark tracking error standard deviation of difference between portfolio and benchmark returns begin aligned text ir frac text portfolio return text benchmark return text tracking error textbf where text ir text information ratio text portfolio return text portfolio return for period text benchmark return text return on fund used as benchmark text tracking error text standard deviation of difference text between portfolio and benchmark returns end aligned ir tracking errorportfolio return benchmark return where ir information ratioportfolio return portfolio return for periodbenchmark return return on fund used as benchmarktracking error standard deviation of differencebetween portfolio and benchmark returns to calculate ir subtract the total of the portfolio return for a given period from the total return of the tracked benchmark index divide the result by the tracking error the tracking error can be calculated by taking the standard deviation of the difference between the portfolio returns and the index returns for ease calculate the standard deviation using a financial calculator or excel 