What is Information Ratio?
Information ratio = active return ÷ tracking error relative to a benchmark like Nifty 50.
Formula
IR = Active Return / Tracking Error (volatility of difference from benchmark)
Indian market context (NSE)
Reference levels: Nifty 50 at 24,300, Reliance Industries at ₹1,300, Bank Nifty futures at 55,000 (lot size 30). Examples below show how Information Ratio shows up on Indian index, equity, and futures books — update to live quotes in your journal.
Nifty 50 perspective
Apply Information Ratio to your Nifty 50 sleeve (spot near 24,300): track the metric on closed index F&O or ETF trades over at least 30 sessions before changing rules. NSE costs and slippage on fast opens often widen the gap between spreadsheet information ratio and bank P&L.
Reliance Industries perspective
On Reliance (₹1,300) delivery or intraday trades, calculate information ratio with contract-note costs included. Single-name results can look strong on information ratio while your Nifty-correlated book tells the opposite — tag “RELIANCE” separately in TradeLyser.
Bank Nifty futures perspective
Bank Nifty futures near 55,000 (lot 30) amplify information ratio swings versus cash — one volatile session can move the metric more than a week of Nifty trades. Log margin mode (MIS/NRML) with each entry for honest review.
How to validate
- Minimum sample: 30 closed trades on one strategy tag before trusting Information Ratio.
- Check for one outlier week inflating Information Ratio — export largest winners and losers.
- Recompute Information Ratio after including brokerage, STT, and slippage on F&O tags.
- Compare Information Ratio on the same date range as profit factor and max drawdown.
How to track in TradeLyser
- Open Strategy Board or analytics → filter by strategy tag and review period.
- Locate the widget or column reporting Information Ratio (or export trades to compute manually).
- Store snapshot values in weekly review: Information Ratio, profit factor, drawdown, trade count.
- If Information Ratio is custom, add a spreadsheet column fed from TradeLyser CSV export.
Best practices
- Publish Information Ratio per strategy, not only at account level.
- Use the same calculation window (weekly vs monthly) year-round.
- Pair Information Ratio with sample size in every review slide or note.
- Reconcile Information Ratio with broker statements before tax filing.
Common pitfalls
- Changing rules after fewer than 20 trades because Information Ratio moved slightly.
- Mixing intraday and positional tags when computing Information Ratio.
- Ignoring costs so Information Ratio looks better than banked P&L.
- Letting one outlier trade dominate the Information Ratio reading.
How to use this in TradeLyser
Pick benchmark and window; log active return and TE quarterly if used.
Related terms
Alpha measures excess return versus a benchmark, given how sensitive your book was to that benchmark (beta). Positive alpha means you beat the index after adjusting for market movement — not merely that your account was green.
Beta estimates how much your trading book moves relative to a benchmark. Beta near 1 suggests similar swing to the index; below 1 less sensitive; above 1 more sensitive.
Sharpe ratio measures how much return you earned for each unit of overall volatility. Higher values generally mean smoother growth relative to swings — on a long enough sample.
Sortino ratio rewards return per unit of harmful volatility — moves below a target return — ignoring upside swings traders generally welcome.
FAQ
IR for day traders?
Usually skip unless vs Nifty hedge book.
Higher IR always better?
Short windows noise — use 12+ months.
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