Does information ratio focus on total risk or only systematic risk?
I thought it was total risk, but the Kaplan book question solutions say systematic risk only.
I’ve discovered several other errors in their material for L3, so wanted to confirm.
Thanks in advance.
It focuses on active risk.
from Investopedia:
let
A = Portfolio Return
B = Benchmark Return (e.g. S&P 500)
Information Ratio = (A - B) / stdev( A - B )