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.
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.
Start journaling with
TradeLyser
Connect your broker, tag strategies, and review performance with AI-assisted insights.