Understanding the Information Ratio

Easy Performance Evaluation Performance Appraisal

A portfolio manager is evaluating the performance of their funds over the past year. They want to assess whether their performance was due to skillful investing or simply a result of taking on higher risks. They decide to use the Information Ratio, which measures the excess return of a portfolio relative to a benchmark per unit of risk. A higher Information Ratio indicates better risk-adjusted performance.

Considering this context, which of the following statements about the Information Ratio is correct?

The Information Ratio can only be calculated if the benchmark has outperformed the portfolio.

The Information Ratio is a measure of performance that considers systematic risk.

A higher Information Ratio suggests that the portfolio manager achieved greater returns above the benchmark for the same amount of active risk taken.

Hint

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