What is Tracking Error?
Tracking Error A measure of the standard deviation of the difference between a portfolio's returns and its benchmark's returns, indicating active management risk.
Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework
How is “Tracking Error” Used in Practice?
A low Tracking Error indicates the portfolio’s returns closely follow its benchmark, while a high value signals significant active management.
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Who Needs to Know This Term?
- Financial Analysts
- Bankers
- Traders
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What is Tracking Error?
A measure of the standard deviation of the difference between a portfolio's returns and its benchmark's returns, indicating active management risk.
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