Information Ratio
Information ratio measures a portfolio’s active return per unit of active risk. It is calculated as the active return (portfolio return minus benchmark return) divided by the tracking error (the standard deviation of the active return).
Example: For example, if a portfolio returns 8% and its benchmark returns 5%, the active return is 3%. If the tracking error is 2%, the information ratio is 3% ÷ 2% = 1.5.
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