Information Ratio

Definition

Information Ration is the ratio of a portfolio’s excess return, or premium, to its tracking error, or the standard deviation of the premium over the period being measured. It is designed to measure how much excess return a man­ager delivers for each unit of risk. A higher number indicates a more favorable balance of reward to risk than a lower number.   A positive number indicates that the portfo­lio outperformed, and a negative number indicates underperformance.