What is considered a good Information Ratio?

Generally, an IR above 0.5 is considered acceptable, above 0.75 is good, and above 1.0 is excellent. Academic research by Grinold and Kahn suggests that a truly skilled active manager might sustain an IR of 0.5 over time, and anything above 1.0 is very rare and warrants scrutiny.

How does the Information Ratio differ from the Sharpe Ratio?

The Sharpe Ratio measures excess return over the risk-free rate divided by total portfolio volatility. The Information Ratio measures excess return over a benchmark (active return or alpha) divided by tracking error. The IR is specifically an active management skill metric, while the Sharpe Ratio is a total risk-adjusted return measure.

What is tracking error and how is it measured?

Tracking error is the annualized standard deviation of the differences between portfolio returns and benchmark returns in each period. A low tracking error (1-2%) means the portfolio closely follows the benchmark; a high tracking error (8-10%) indicates highly active management with large divergences from the index.

Information Ratio Calculator

Calculate the Information Ratio (IR) to measure a portfolio manager's ability to generate excess returns relative to a benchmark, adjusted for tracking error.

By AbraCalc Editorial Team · Reviewed by AbraCalc Methodology Review · Last reviewed: 2026-06-25

Embed this tool on your site

<iframe src="https://abracalc.com/calculator/information-ratio/embed.html" width="340" height="320" style="border:1px solid #e4e7ec;border-radius:12px" loading="lazy"></iframe>

How to use this tool

Enter portfolio return, benchmark return and tracking error (annualised std dev of active return) in the fields above.
Results update instantly as you type — or click Calculate.
Read your information ratio and the full breakdown beneath it.

⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.

Formula

Information Ratio (IR) = (R_p − R_b) / TE

Where R_p = portfolio return, R_b = benchmark return, TE = tracking error (annualised standard deviation of the active return series).

How it works

The Information Ratio quantifies how much excess return a portfolio generates per unit of active risk taken relative to a benchmark. A higher IR indicates better risk-adjusted outperformance. An IR above 0.5 is generally considered good, and above 1.0 is considered exceptional. The tracking error should be the annualised standard deviation of the periodic active returns (portfolio minus benchmark returns), not merely the current period's difference.

Worked example

Portfolio 12%, Benchmark 8%, Tracking Error 4%

Active return = 12% − 8% = 4%.
Information Ratio = 4% / 4% = 1.0000.

Information Ratio: 1.0000 | Active Return: 4.00%

Common mistakes to avoid

Using gross returns instead of excess returns over the benchmark: the alpha (numerator) must be the portfolio return minus the specific benchmark return being tracked, not raw total return.
Annualizing the Information Ratio incorrectly: if tracking error is calculated from monthly excess returns, annualize by multiplying the monthly IR by sqrt(12), not by 12.
Treating a high IR as sufficient evidence of skill without checking the number of observations: an IR of 1.0 from 12 monthly periods is statistically insignificant; several years of data are needed for the ratio to be meaningful.

Key terms

What is tracking error?: The annualised standard deviation of the difference between portfolio returns and benchmark returns over a series of periods. It measures consistency of active management.
What is active return?: The difference between a portfolio's return and its benchmark's return over the same period, also called alpha.
What is a good Information Ratio?: An IR above 0.5 is generally considered good; above 1.0 is considered exceptional. Negative values indicate underperformance relative to the benchmark.
How does IR differ from Sharpe Ratio?: The Sharpe Ratio uses risk-free rate as the benchmark and total volatility as risk. The IR uses a specific performance benchmark and tracking error as risk.

Frequently asked questions

What is considered a good Information Ratio?: Generally, an IR above 0.5 is considered acceptable, above 0.75 is good, and above 1.0 is excellent. Academic research by Grinold and Kahn suggests that a truly skilled active manager might sustain an IR of 0.5 over time, and anything above 1.0 is very rare and warrants scrutiny.
How does the Information Ratio differ from the Sharpe Ratio?: The Sharpe Ratio measures excess return over the risk-free rate divided by total portfolio volatility. The Information Ratio measures excess return over a benchmark (active return or alpha) divided by tracking error. The IR is specifically an active management skill metric, while the Sharpe Ratio is a total risk-adjusted return measure.
What is tracking error and how is it measured?: Tracking error is the annualized standard deviation of the differences between portfolio returns and benchmark returns in each period. A low tracking error (1-2%) means the portfolio closely follows the benchmark; a high tracking error (8-10%) indicates highly active management with large divergences from the index.