Tracking Error


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.


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BREAKING DOWN '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.

  1. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  2. Benchmark

    A standard against which the performance of a security, mutual ...
  3. Standard Deviation

    1. A measure of the dispersion of a set of data from its mean. ...
  4. Information Ratio - IR

    A ratio of portfolio returns above the returns of a benchmark ...
  5. Ex-Post Risk

    A type of risk measurement technique that uses historic returns ...
  6. Ex-Post

    Another term for actual returns. Ex-post translated from Latin ...
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  1. How can I calculate the tracking error of an ETF or indexed mutual fund?

    Calculate the tracking error of an indexed exchange-trade fund (ETF) or mutual fund by doing a standard deviation percentage ... Read Full Answer >>
  2. Is tracking error a significant measure for determining ex-post risk?

    Before we answer your question, let's first define tracking error and ex-post risk. Tracking error refers to the amount by ... Read Full Answer >>
  3. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
  4. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  5. Does OptionsHouse have mutual funds?

    OptionsHouse has access to some mutual funds, but it depends on the fund in which the investor is looking to buy shares. ... Read Full Answer >>
  6. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>

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