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

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.
References in periodicals archive ?
So, the tracking error dynamics equation can be reduced to the equation below:
We have focused on following characteristics of the tracking portfolios that are important in terms of the index tracking: profitability and volatility of the portfolio, value of Information Ratio, correlation between the returns of the tracking portfolio and the returns of the tracked index, correlation between the returns of the tracked index and the tracking error, and tracking error volatility.
In other words, with the learning control schemes, the tracking errors in any phase of the time domain, either in the transient phase or in the steady state, can be made to be within the specified error bound.
Figure 8 demonstrates that, due to the differences in the deadzone parameters, vibration appears while controlling these cylinders and the tracking error becomes larger.
Otra medida especialmente relevante en la gestion de carteras es el tracking error, ya que es un indicador util a la hora de analizar fondos que replican indices, valorando el riesgo relativo asumido por el gestor al separarse, en mayor o menor medida, de su cartera de referencia.
As the square paths are intrinsically different form their circular counterparts, the tracking errors will also differ.
Investors who are seeking alpha and have little concern about tracking error may choose to overweight strategic beta strategies.
The control law assures the stability and the model tracking error tends to zero.
Let the definition of the tracking error on XY-plane is calculated as:
Sarah Wang, managing director of EM structuring Asia, Barclays Plc, said, 'The replication strategy breaks down the source of EM returns into risk premium components in a simple and transparent framework, and achieves high correlation and low tracking error to the benchmark index based on historical data.
The simplest approach is to assess each potential stock, to measure the index tracking error, and then select those stocks that minimize this deviation.