Information Ratio
The Information Ratio (IR) is a measure that compares the returns of an asset or portfolio relative to a benchmark, adjusted for risk. It helps assess the consistency of a fund or fund manager’s performance over time. The formula for IR is the excess return of the asset or portfolio over the benchmark, divided by the tracking error (the standard deviation of the excess return). A higher IR indicates better risk-adjusted performance, making it a useful tool for comparing fund managers who follow similar strategies. It highlights the ability to generate consistent alpha (outperformance).
Related Terms
Lump Sum
A lump sum is a single, one-time payment made in full, rather than in smaller,...
Equities
The term equities can refer to two different concepts: 1. Equity as Shares/Stocks: Equities represent...
Annual General Meeting
An Annual General Meeting (AGM) is an event where a company's board of directors presents...
Convertible Bonds
A convertible bond is a hybrid security that functions initially as a debt instrument, paying...
Bottom Line in Finance
In finance, the 'bottom line' refers to a company’s key metrics, such as earnings, profits,...
Compounded Annual Growth Rate (CAGR)
The Compound Annual Growth Rate (CAGR) indicates the average annual return an investment generates over...
