Last updated October 5, 2026 · Report an error
The Information Ratio specifically measures active management skill — how much extra return a portfolio manager generated above a benchmark, relative to how much they deviated from that benchmark to do it. Unlike Sharpe, Treynor, or Sortino, it compares against a chosen benchmark rather than the risk-free rate.
How it works
Enter the portfolio's return, the benchmark's return (like a relevant market index), and the tracking error (how much the portfolio's returns have deviated from the benchmark's), and the calculator applies IR = (Portfolio Return − Benchmark Return) ÷ Tracking Error.
- Enter portfolio return (%).
- Enter benchmark return (%).
- Enter tracking error (%).
- Click Calculate to see your results.
Examples
Modest but real outperformance
A portfolio returning 12% against a 9% benchmark, with 5% tracking error, has an Information Ratio of 0.6 — the manager beat the benchmark by 3 percentage points, at the cost of a 5% tracking-error deviation to do it.
Who should use it
- Evaluating active fund manager performance and skill.
- Investment analysis and manager selection.
Industry applications
- Investment analysis and fund manager evaluation
- Institutional investment management
Advantages
- Directly assesses active management skill relative to a chosen benchmark.
- Accounts for how much risk (tracking error) was taken to achieve outperformance.
Limitations
- Highly sensitive to benchmark choice — an inappropriate benchmark can make a genuinely skilled or unskilled manager look different than they are.
Common mistakes to avoid
- Comparing a portfolio to an inappropriate or mismatched benchmark, which distorts both active return and tracking error.
- Confusing Information Ratio with Sharpe Ratio — they use fundamentally different reference points (benchmark vs. risk-free rate).
Best practices
- Use a genuinely relevant, comparable benchmark for the portfolio's actual investment style and universe.
- Look at Information Ratio over a long enough period to distinguish genuine skill from short-term luck.
Tips
- A consistently positive Information Ratio over many years is a much stronger signal of genuine skill than a single good year, which could easily be luck.