Assume that a large‐cap value manager earned an average active return relative to the Russell 1000 Value Index (the benchmark) of 2.2 percent. Furthermore, assume that the manager’s tracking risk relative to the benchmark was 5.8 percent.

The manager’s IR is

IR = 2.2/5.8 = 0.38.

Thus, we can see that the manager deviated considerably from the benchmark’s holdings but was able to generate positive alpha in doing so.