What Does Information Ratio - IR Mean?
A ratio of portfolio returns above the returns of a benchmark (usually an index) to the volatility of those returns. The information ratio (IR) measures a portfolio manager's ability to generate excess returns relative to a benchmark, but also attempts to identify the consistency of the investor. This ratio will identify if a manager has beaten the benchmark by a lot in a few months or a little every month. The higher the IR the more consistent a manager is and consistency is an ideal trait.
IR = (Rp-Ri)
------
Sp-i
Rp = Return of the portfolio
Ri = Return of the index or benchmark
Sp-i = Tracking error (standard deviation of the difference between returns of the portfolio and the returns of the index)
For the OK-Score this means :
(Annual)return OK-Score AEX Portfolio = 12,14%
(Annual)return of the AEX index = 0,96%
Tracking error = 5,57%
IR = 11,18/5,57 = 2,01
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