Information ratio
How consistently a benchmark is beaten: the excess return over the index divided by the dispersion of that excess.
Formula
The series of period-by-period differences between portfolio and benchmark returns is built, then its mean and standard deviation are taken. The denominator is the same quantity as tracking error.
How to read the number
It separates a manager who beats the index by a little and regularly from one who jumped ahead once and has kept pace ever since.
When the metric lies
Also known as: active return ratio