Active return relative to a benchmark divided by tracking error. It measures how consistently a manager adds value per unit of active risk.
Where you will meet it
Information ratio comes up in 7 learning outcome notes across the FRM syllabus.
A few of them:
Modern Portfolio Theory (MPT) and the Capital Asset Pricing Model (CAPM) FRM Part I · Foundations of risk management
“Information ratio = mean active return ÷ tracking error.”
Alpha (and the Low-Risk Anomaly) FRM Part II · Risk management and investment management
“Let IR be the information ratio and T the number of years.”
Alpha (and the Low-Risk Anomaly) FRM Part II · Risk management and investment management
“The information ratio is alpha divided by tracking error, the reward per unit of active risk.”
Alpha (and the Low-Risk Anomaly) FRM Part II · Risk management and investment management
“Under the ideal assumptions of independent bets and full implementation, Grinold's fundamental law of active management says the highest attainable information ratio, written IR, equals the information coefficient, IC, times the square root of breadth, BR: IR = IC × √BR.”
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