What does tracking error mean?
Definitions for tracking error
track·ing error
This dictionary definitions page includes all the possible meanings, example usage and translations of the word tracking error.
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Wikipedia
Tracking error
In finance, tracking error or active risk is a measure of the risk in an investment portfolio that is due to active management decisions made by the portfolio manager; it indicates how closely a portfolio follows the index to which it is benchmarked. The best measure is the standard deviation of the difference between the portfolio and index returns. Many portfolios are managed to a benchmark, typically an index. Some portfolios are expected to replicate, before trading and other costs, the returns of an index exactly (e.g., an index fund), while others are expected to 'actively manage' the portfolio by deviating slightly from the index in order to generate active returns. Tracking error is a measure of the deviation from the benchmark; the aforementioned index fund would have a tracking error close to zero, while an actively managed portfolio would normally have a higher tracking error. Thus the tracking error does not include any risk (return) that is merely a function of the market's movement. In addition to risk (return) from specific stock selection or industry and factor "betas", it can also include risk (return) from market timing decisions. Dividing portfolio active return by portfolio tracking error gives the information ratio, which is a risk adjusted performance measure.
Numerology
Chaldean Numerology
The numerical value of tracking error in Chaldean Numerology is: 3
Pythagorean Numerology
The numerical value of tracking error in Pythagorean Numerology is: 4
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"tracking error." Definitions.net. STANDS4 LLC, 2024. Web. 23 Apr. 2024. <https://www.definitions.net/definition/tracking+error>.
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