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tracking error

   Also found in: Acronyms, Wikipedia 0.09 sec.
Tracking error
In an indexing strategy, the standard deviation of the difference between the performance of the benchmark and the replicating portfolio.
tracking error
The difference in the return earned by a portfolio and the return earned by the benchmark against which the portfolio is constructed. For example, if a bond portfolio earns a return of 5.15% during a period when the portfolio's benchmark (say, for example, the Lehman Brothers Index) produces a return of 5.06%, the tracking error is .09%, or 9 basis points.


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