Tracking Error means Active Return or Active Risk? return, exactly, calling, solution, computing

cfa10yrplan

Perhaps the curriculum is fuzzy or maybe my head is fogged up...

"Tracking Error" means what exactly-- "Active Return" or "Active Risk"?

I thought Tracking error is (Portfolio - Bmk) return, but Reading 47 EOC # 8, is calling Std. dev. of (Portfolio - Bmk) return as "Tracking Error", I thought the name for that is "tracking risk".

Also as a side-bar, in thise EOC solution, computing std. dev. from 5 observations seems statistically poor, right?



Edited 1 time(s). Last edit at Tuesday, May 17, 2011 at 10:13PM by jbaphna.

thommo77

tracking error = tracking risk

Chuckrox

std dev of active return.

CP

dyga

Ok, the correct answer is curriculum is no fuzzy, my head was fogged up :-) Thanks!
I scare myself doing stupid things like this last minute.

In any case, anyone see any issue with computing Std. dev. based on just 5 observations, and its statistical validity?

mar350

In practice it may not be ideal, but in a test setting it's the only real way to go.