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Tracking Error |
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Tracking error In an indexing strategy, the standard deviation of the difference between the performance of the benchmark and the replicating portfolio.
Tracking Error An excessive deviation between an investment or portfolio and some benchmark. It is commonly used with respect to mutual funds, hedges, or other investment vehicles designed to track some index or other benchmark. If the portfolio's performance falls short of the benchmark, especially by a large amount, there is said to be a tracking error; an investor or investment company may wish to re-evaluate how it puts together the portfolio. Tracking Error What Does Tracking Error Mean? A divergence between the price behavior of a position or portfolio and the price behavior of a benchmark. It often is used in the context of a hedge or mutual fund that did not perform as effectively as intended, creating an unexpected profit or unexpected loss. Investopedia explains Tracking Error Tracking errors are reported as a “standard deviation percentage” difference. This measure reports the difference between the return an investor received and the return on the benchmark the investor was trying to match or beat. Related Terms: How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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