Benchmark Tracking Error Definition
Contents |
Center Retirement Personal Finance Trading Q3 Special Report Small Business Back to School Reference Dictionary Term Of The Day Expansionary Policy A macroeconomic
Ex Ante Tracking Error Definition
policy that seeks to expand the money supply to encourage economic ... define tracking error Read More » Latest Videos Why Create a Financial Plan? John McAfee on the IoT & Secure tracking error meaning Smartphones Guides Stock Basics Economics Basics Options Basics Exam Prep Series 7 Exam CFA Level 1 Series 65 Exam Simulator Stock Simulator Trade with a
Tracking Error Information Ratio
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
Tracking Error Interpretation
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:Trac
the benchmark or index it was meant to mimic or beat. Tracking error is sometimes called active risk. There are two ways to measure tracking annualized tracking error error. The first is to subtract the benchmark's cumulative returns from
Tracking Error Cfa
the portfolio's returns, as follows: Returnp - Returni = Tracking Error Where: p = portfolio i = tracking error volatility index or benchmark However, the second way is more common, which is to calculate the standard deviation of the difference in the the portfolio and benchmark returns over http://www.investopedia.com/terms/t/trackingerror.asp time. The formula is as follows: How it works (Example): Let's assume you invest in the XYZ Company mutual fund, which exists to replicate the Russell 2000 index, both in composition and in returns. If the XYZ Company mutual fund returns 5.5% in a year but the Russell 2000 (the benchmark) returns 5.0%, then using the first http://www.investinganswers.com/financial-dictionary/mutual-funds-etfs/tracking-error-4970 formula above, we would say that the XYZ Company mutual fund had a 0.5% tracking error. As time goes by, there will be more periods during which we can compare returns. This is where the second formula becomes more useful. The consistency (or inconsistency) of the "spreads" between the portfolio's returns and the benchmark's returns is what allows analysts to try to predict the portfolio's future performance. If, for example, we knew that the portfolio's annual returns were 0.4% higher than the benchmark 67% of the time during the last five years, we would know that this would probably be the case going forward (assuming the portfolio manager made no major changes). The predictive value of these calculations gets even better when there are more data points and when the analyst accounts for how the portfolio's securities move relative to one another (this is called co-variance). Several factors generally determine a portfolio's tracking error: 1. The degree to which the portfolio and the benchmark have securities in commo
& Pans E-Newsletter Fund Spy Column Fund Spy Book Bond Squad Fund Video Reports FundInvestor Newsletter ETF Investing Fund Family Experts Fund Reports All Fund Analyst Reports Fund Stewardship Reports Fund http://www.morningstar.com/InvGlossary/tracking_error_definition_what_is.aspx Ratings Highest-Rated Value Highest-Rated Growth Highest-Rated Large-Cap Highest-Rated Mid-Cap Highest-Rated Small-Cap Foreign Fund Standouts Star Rating Performance Rating Methodology Fund Performance Top 1-Month Performers Top YTD Performers Top 1-Year Performers Top 3-Year Performers Top 5-Year Performers Fund Category Returns Biggest Daily NAV Changes Closed-End Funds Exchange-Traded Funds Quarterly Market Outlook Fund Screeners Basic Screeners Fund Screener Long-Term Winners Solid Small-Growth Funds Conservative Bond Funds Premium tracking error Screeners Premium Fund Screener Index Funds Hidden Gems Lower-Risk Foreign Funds Video Center # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z E-mail Article | Print Article | digg it | Del.icio.us http%3a%2f%2fwww.morningstar.com%2fInvGlossary%2fGlossary.aspx%3fterm%3dtracking_error_definition_what_is Tracking Error When using an indexing or any other benchmarking strategy, the amount by tracking error definition which the performance of the portfolio differed from that of the benchmark. In reality, no indexing strategy can perfectly match the performance of the index or benchmark, and the tracking error quantifies the degree to which the strategy differed from the index or benchmark. Sponsors Center Sponsored Links Related Tracking Error Terms 52-Week Range American Stock Exchange Annual High Annual Low Ask Price Related Tracking Error Content The Best New ETFs of 2007 Three Fund Picks with Something Extra A Better Way to Measure Fund Performance? Three Questions to Ask Your Index Fund Related Tracking Error Tools Investment Radar Portfolio Manager Stock Screener Site Directory Site Map Our Products Corrections Help Advertising Opportunities Licensing Opportunities Glossary RSS Mobile Portfolio Affiliate Careers Company News International Sites: Australia Canada China France Germany Hong Kong Italy The Netherlands Norway Spain U.K. Switzerland India Finland Stocks by: Name| Ticker| Star Rating| Market Cap| Stock Type| Sector| Industry Mutual Funds by: Star Rating| Investment Style| Total Assets| Category| Top Holdings| Top Sectors| Symbol / Ticker| Name ETFs by: Star Rating| Category| Total Assets| Symbol / Ticker| Name Articles by: Title| Date| Author| Collection| Interest| Popularity Investmen