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
Gold Futures
Gold futures are commodity derivatives tied to the value of gold bullion. By purchasing a...
Accumulation/Distribution Indicator (A/D)
The Accumulation/Distribution (A/D) Indicator is a technical analysis tool used to determine the trend of...
NFO
A New Fund Offer (NFO) is when a mutual fund scheme is launched, allowing investors...
Issuer
An issuer is the company that sells its shares to the public for the first...
Forex Options
Forex options, also called currency options, are exchange-traded derivatives granting the right, but not the...
Bought Out Deal
A bought-out deal is a stock offering where an investment bank purchases the entire issue...
