What is a good tracking error?

Inhaltsverzeichnis:

1. What is a good tracking error?
2. What causes tracking error?
3. What is tracking error of a portfolio?
4. How do you interpret tracking error?
5. Can you have a negative tracking error?
6. How do you explain tracking error?
7. How do I check my tracking error?
8. What is a good information ratio?
9. How is active risk measured?
10. What is a bad information ratio?
11. Is tracking error good or bad?
12. Can an active risk be negative?
13. What's a good Information Ratio?
14. How do you find the tracking error?

What is a good tracking error?

Theoretically, an index fund should have a tracking error of zero relative to its benchmark. Enhanced index funds typically have tracking errors in the 1%-2% range. Most traditional active managers have tracking errors around 4%-7%.

What causes tracking error?

Tracking error can be caused by two reasons. First, by the trading cost and second, by improperly replicating the index. For an ETF, tracking error is the deviation in performance of the fund and its index. It occurs primarily because of the ETF's total expense ratio (a kind of trading cost).

What is tracking error of a portfolio?

Tracking error is formally defined as the standard deviation of the difference between the returns of the portfolio and the returns of the benchmark—or the dispersion of the excess portfolio returns compared with its benchmark. It's typically expressed both as an annualized number and as a percentage.

How do you interpret tracking error?

Tracking 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 Deviation of (P - B)

Can you have a negative tracking error?

Tracking difference, which can be positive or negative, tells you the extent to which a fund has out- or underperformed its benchmark index. ... Because a fund's NAV total return includes fund expenses, tracking difference typically is negative for index funds.

How do you explain tracking error?

Tracking error is the divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark. This is often in the context of a hedge fund, mutual fund, or exchange-traded fund (ETF) that did not work as effectively as intended, creating an unexpected profit or loss.

How do I check my tracking error?

Tracking 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 Deviation of (P - B)

What is a good information ratio?

The higher the information ratio, the better. ... Generally speaking, an information ratio in the 0.40-0.60 range is considered quite good. Information ratios of 1.00 for long periods of time are rare.

How is active risk measured?

Active risk is measured using the following steps:

1. Step 1: calculate the average active return.
2. Step 2: subtract the average active return from each value of the active return and square it.
3. Step 3: sum up the squared deviations calculated in Step 2 and divide by n.

What is a bad information ratio?

If the information ratio of a mutual fund is negative, it indicates that the mutual fund manager was unable to produce any excess returns at all. An information ratio of less than 0.4 means that the mutual fund could not produce excess returns for a sufficiently long time and the fund may not be a good investment.

Is tracking error good or bad?

From an investor's point of view, tracking error can be used to evaluate portfolio managers. If a manager is realizing low average returns and has a large tracking error, it is a sign that there is something significantly wrong with that investment and that the investor should most likely find a replacement.

Can an active risk be negative?

Measuring Active Risk In this example, the active risk has a positive effect. However, had the investment returned less than 5%, the active risk would be negative, indicating that security selections and/or market-timing decisions that deviated from the benchmark were poor decisions.

What's a good Information Ratio?

The higher the information ratio, the better. ... Generally speaking, an information ratio in the 0.40-0.60 range is considered quite good. Information ratios of 1.00 for long periods of time are rare. Typical values for information ratios vary by asset class.

How do you find the tracking error?

Tracking 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 Deviation of (P - B)