tracking error(redirected from Tracking Errors)
Also found in: Encyclopedia.
In an indexing strategy, the standard deviation of the difference between the performance of the benchmark and the replicating portfolio.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.