Groundlearn / Glossary / Information ratio
Information ratio
A CFA term, defined in plain English with the distinction examiners test.
What it means
Active return divided by tracking error — value added per unit of benchmark-relative risk.
The exam angle
The natural measure for a benchmarked active manager, where the Sharpe ratio would mostly reflect the benchmark.
Where it appears in the syllabus
- Performance MeasurementCFA Level III · exam weight 5–10% · Attribution, appraisal, manager selection and the GIPS standards.
- Portfolio ConstructionCFA Level I · exam weight 8–12% · Risk and return, the CAPM, IPS construction, behavioural biases.
Related terms
- AlphaReturn in excess of what the asset’s risk exposures would predict.
- Sharpe ratioExcess return over the risk-free rate, per unit of total risk.
- Treynor ratioExcess return per unit of systematic risk, using beta in the denominator.
- CompositeAll portfolios managed to the same strategy or objective, grouped together for GIPS reporting.
- GIPSVoluntary standards for calculating and presenting investment performance, designed so that a prospective client can…
- Implementation shortfallThe difference between the return on a paper portfolio and the return actually achieved, capturing delay, market…
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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