Barra Ex-ante Tracking Error
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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 ex ante tracking error calculation returns. Many portfolios are managed to a benchmark, typically an index. Some portfolios ex ante tracking error formula are expected to replicate, before trading and other costs, the returns of an index exactly (e.g., an index fund), while others
Ex Ante Tracking Error Definition
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
Ex Ante Vs Ex Post Tracking Error
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 "bets," it can also include risk (return) from market timing decisions. Dividing portfolio active return by ex ante tracking error calculation excel portfolio tracking error gives the information ratio, which is a risk adjusted performance measure. Contents 1 Definition 1.1 Formulas 1.2 Interpretation 2 Examples 3 References 4 External links Definition[edit] If tracking error is measured historically, it is called 'realized' or 'ex post' tracking error. If a model is used to predict tracking error, it is called 'ex ante' tracking error. Ex-post tracking error is more useful for reporting performance, whereas ex-ante tracking error is generally used by portfolio managers to control risk. Various types of ex-ante tracking error models exist, from simple equity models which use beta as a primary determinant to more complicated multi-factor fixed income models. In a factor model of a portfolio, the non-systematic risk (i.e., the standard deviation of the residuals) is called "tracking error" in the investment field. The latter way to compute the tracking error complements the formulas below but results can vary (sometimes by a factor of 2). Formulas[edit] The ex-post tracking error formula is the standard deviation of the active returns, given by: T E = ω = Var ( r p − r b ) = E [ ( r p − r b ) 2 ] − ( E [ r
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Ex Ante Tracking Error Models
Rates published monthly by the IRS for federal income tax purposes. These rates ex ante tracking error example are ... Read More » Latest Videos Why Create a Financial Plan? John McAfee on the IoT ex post tracking error calculation excel & Secure Smartphones Guides Stock Basics Economics Basics Options Basics Exam Prep Series 7 Exam CFA Level 1 Series 65 Exam Simulator Stock Simulator Trade with https://en.wikipedia.org/wiki/Tracking_error a starting balance of $100,000 and zero risk! FX Trader Trade the Forex market risk free using our free Forex trading simulator. Advisor Insights Newsletters Site Log In Advisor Insights Log In Tracking Error Loading the player... What is a 'Tracking Error' Tracking error is the divergence between the price behavior of a position http://www.investopedia.com/terms/t/trackingerror.asp or a portfolio and the price behavior of a benchmark. This is often in the context of a hedge or mutual fund that did not work as effectively as intended, creating an unexpected profit or loss instead.Tracking error is reported as a standard deviation percentage difference, which reports the difference between the return an investor receives and that of the benchmark he was attempting to imitate. BREAKING DOWN 'Tracking Error' Since portfolio risk is often measured against a benchmark, tracking error is a commonly used metric to gauge how well an investment is performing. Tracking error shows an investment's consistency versus a benchmark over a given period of time. Even portfolios that are perfectly indexed against a benchmark behave differently than the benchmark, even though this difference on a day-to-day, quarter-to-quarter or year-to-year basis may be ever so slight. Tracking error is used to quantify this difference.Calculation of Tracking ErrorTracking error is the standard deviation of the difference between the returns of an investment and its benchmark. Given a sequence of returns for an investment or portfolio and its benchmark, tracking error is calculated as follows:Tracking Error = Standard
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