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sigmaquant.performance.metrics.information_ratio

sigmaquant.performance.metrics.information_ratio(returns, factor_returns)

Compute the Information Ratio.

The Information Ratio measures the risk-adjusted performance of a strategy relative to a benchmark or factor. It is defined as the ratio between the average active return and the tracking error.

Parameters:

• returns – Sequence of strategy returns.

• factor_returns – Sequence of benchmark or factor returns. Must be aligned with returns.

Returns:

Information Ratio.

Return type:

float

Notes

• If the tracking error is zero or undefined, the Information Ratio

is undefined.

The Information Ratio estimator is:

\[\widehat{\text{IR}} = \frac{ \bar{a} }{ \widehat{\text{TE}} }\]

where \(\bar{a}\) is the sample mean active return and \(\widehat{\text{TE}}\) is the tracking error.