Tracking Error

Filed Under » , ,
Dictionary Says

Definition of 'Tracking Error'

A 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 or mutual fund that did not work as effectively as intended, creating an unexpected profit or loss instead. 
Investopedia Says

Investopedia explains 'Tracking Error'

Tracking errors are reported as a "standard deviation percentage" difference. This measure reports the difference between the return an investor receives and that of the benchmark he or she was attempting to imitate.

Video Definition

Related Definitions

  •

    Benchmark

    A standard against which the performance of a security, mutual fund or investment manager can be measured. Generally, broad market and market-segment stock and bond indexes are used for ...
    Read More »

  • Hedge

    Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures ...
    Read More »

  • Standard Deviation

    1. A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance. ...
    Read More »

    • Ex-Post

      Another term for actual returns. Ex-post translated from Latin means "after the fact". The use of historical returns has traditionally been the most common way to predict the probability ...
      Read More »

    • Ex-Post Risk

      A type of risk measurement technique that uses historic returns to predict the riskiness of a certain investment in the future. This type of risk measure is the equivalent of the ...
      Read More »

    • Information Ratio - IR

      A ratio of portfolio returns above the returns of a benchmark (usually an index) to the volatility of those returns. The information ratio (IR) measures a portfolio manager's ability to ...
      Read More »

Articles Of Interest

Sponsored links
Hot Definitions
Partner Links
Suggested Definitions