Active Risk


DEFINITION of 'Active Risk'

A type of risk that a fund or managed portfolio creates as it attempts to beat the returns of the benchmark against which it is compared. In theory, to generate a higher return than the benchmark, the manager is required to take on more risk. This risk is referred to as active risk.


The more an active portfolio manager diverges from a stated benchmark, the higher the chances become that the returns of the fund could diverge from that benchmark as well. Passive managers who look to replicate an index as closely as possible usually provide the lowest levels of active risk, but this also limits the potential for market-beating returns.

  1. Benchmark

    A standard against which the performance of a security, mutual ...
  2. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. ...
  3. Index

    A statistical measure of change in an economy or a securities ...
  4. Active Investing

    An investment strategy involving ongoing buying and selling actions ...
  5. Passive Investing

    An investment strategy involving limited ongoing buying and selling ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in ...
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