Annualize Tracking Error
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Annualized Information Ratio
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Annualized Standard Deviation
Articles Concepts Statistics StatFACTS Links Conference Materials Dynamic Text Contact Us Request More Information Complimentary Investment Analysis Schedule Web Demo Tracking Error Tracking Error (also known as 'active risk') is the annualized standard deviation of excess return to the benchmark. Like R-Squared, Tracking Error is calculated using the common date range of the benchmark and the
Annualized Tracking Error In Excel
weighted portfolio return series. where: Tracking Error std = standard deviation arithmetic return of weighted portfolio return series at time t arithmetic return of benchmark at time t N = periods per year Statistic Tracking Error PSN SMA login PO Box 12368 | 312 Dorla Court, NV 89448 | ph 775.588.0654 | fax 775.588.8423 Privacy Policy| Financial intelligence division of Informa| Informa Business Intelligence, Inc., a company incorporated in Massachusetts, USA under company number 042705709 with offices at 52 Vanderbilt Avenue, 11th Floor, New York, NY 10017. Informa Business Intelligence, Inc. is part of Informa PLC Copyright © 2016 Informa Business Intelligence, Inc. Informa Investment Solutions is part of the Business Intelligence Division of Informa PLC Informa PLC About us Investor relations Talent This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC’s registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726. Informa
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Tracking Error Calculation Example
posting ads with us Quantitative Finance beta Questions Tags Users Badges Unanswered Ask Question _ Quantitative Finance Stack Exchange is a calculate tracking error from monthly returns question and answer site for finance professionals and academics. Join them; it only takes a minute: Sign up Here's how it works: Anybody can ask a question Anybody can answer The best answers are http://www.styleadvisor.com/content/tracking-error voted up and rise to the top How to calculate annualised tracking error? up vote 0 down vote favorite I have 36 months of relative returns and I need to calculate the annualised tracking error. So, using 36 months of returns is it simply like below: stdev(36 months of returns) * sqrt(12) Why the sqrt(12)? portfolio-management returns tracking-error share|improve this question edited Nov 3 '15 at 3:32 SRKX♦ http://quant.stackexchange.com/questions/19599/how-to-calculate-annualised-tracking-error 7,31032255 asked Sep 3 '15 at 11:38 mHelpMe 11811 add a comment| 1 Answer 1 active oldest votes up vote 1 down vote $\sqrt{12}$ annualizes monthly deviations. But I don't understand why you measure tracking error with stdev. It should be $$ ATE = \sqrt{\frac{12}{36}\sum_{i=1}^{36}(r_{b,i}-r_{t,i})^2}$$ where $r_{b,i}$ is benchmark return for month $i$ and $r_{t,i}$ is tracking portfolio return for same period. So you shouldn't substract average error inside square. share|improve this answer edited Sep 3 '15 at 13:10 answered Sep 3 '15 at 13:02 hvedrung 1596 This is correct, in particular, for ETFs. The scaling is needed for annualization. The same treatment is also employed for historical volatility estimation based on daily asset prices. –Gordon Nov 2 '15 at 14:42 I think his "returns" are as indicated in the question "relative" returns so they correspond to $\bar{r}_i = r_{t,i} - r_{b,i}$, then he uses the approach from wiki $TE=\sqrt{\text{Var}(\bar{r}_i)}$ is that wrong? –SRKX♦ Nov 3 '15 at 3:37 add a comment| Your Answer draft saved draft discarded Sign up or log in Sign up using Google Sign up using Facebook Sign up using Email and Password Post as a guest Name Email Post as a guest
standard deviation of the differences between the return on the portfolio and the return on the benchmark; the standard deviation of the excess returns: σ2 = 1/(n - 1) Σ(xi - http://moneyterms.co.uk/tracking-error/ yi)2 Where σ is the tracking error n is the number of periods over which it is measured x is the percentage return on the portfolio in period i y is the percentage return on the benchmark Some sources claim that the average error should be subtracted from right side of the equations above. That would give us the standard deviation of the tracking error from the tracking tracking error error over time. The formula given here appears preferable as it is a measure of deviation from the benchmark itself. In order to make the tracking error comparable it should be annualised. In order to do the right right of the equation should be multiplied by the number of periods in an year. Equivalents σ multiplied by the root of the number of periods in an year. So if tracking error in the error is based on monthly returns, it should be multiplied by root 12 to annualise. Tracking error may be calculated from historical data (as above) or estimated for future returns. The former is called ex-post tracking error, and the latter ex-ante (standard terminology for statistics). The causes of tracking error For an actively managed fund tracking error is a measure of how actively managed it is. A closet tracker will have a low tracking error, a very actively managed fund a high tracking error. An index tracker has two different causes of tracking error: trading and management costs, the differences in the composition of the portfolio and the benchmark. The second of these is a direct result of the need to minimise the first. The simplest way to construct a tracker would be to simply hold every security in an index in proportion to its weighting in the index. The problem with this is that it increases trading costs as it involves holding a large number of securities. In order to control trading costs, tracker funds hold a selection of securities that is statistically likely to replicate the performance of the index. This requires statistical analysis to construct the portfolio that will most accu