BacktestFolio · Glossary
Information Ratio
In plain language
The Sharpe ratio measures return per unit of total risk; the Information Ratio measures excess return per unit of deviation from the benchmark. An IR of 0.5 or above is considered very good for active strategies.
Technical definition
Excess return over the benchmark divided by the Tracking Error. Measures how consistently a strategy outperforms the benchmark: a high IR means the outperformance is systematic and not merely the result of luck.