Glossary· Benchmark-relative
What is Information ratio?
Return above the benchmark, per unit of tracking error.
Consistency of outperformance rather than its size. A fund beating its index by 2% every year scores far better than one beating it by 6% then trailing by 4%.
For the formula and the constants behind this figure, see Methodology.
Guides that use Information ratio
3 guides put this term to work.
- Treynor and information ratio: advanced tools for comparing fundsOne prices market risk, the other prices the decision to differ from the index. For choosing between active funds in a category, the second matters most.
- Anatomy of a legendary fund run — and why it endedThe five phases every great run follows, why most investors arrive at phase four, and how to separate skill from a style tailwind using numbers, not the story.
- AI and algorithms in fund management: hype and realityInside Indian AMCs it does operations and compliance, not stock picking. Why predictive advantage is structurally hard, and what SEBI now requires.
More on benchmark-relative
How the fund behaved against its index. All computed from 36 monthly returns, so a fund needs about three years of history to show any of them.
- Alpha
- Annualized return above what the fund's market exposure alone would predict.
- Beta
- How hard the fund moves when the index moves. 1 = in step.
- R²
- How much of the fund's movement the benchmark explains, 0–100%.
- Treynor ratio
- Excess return per unit of beta rather than per unit of total volatility.
- Tracking error
- How far the fund's returns typically stray from the benchmark's, annualized.
- Upside capture
- The share of the index's gains the fund captured in months the index rose. 100 = matched it.
- Downside capture
- The share of the index's losses the fund took in months the index fell. Lower is better.