sabre

T .
If active returns are un-correlated  then total tracking risk is nothing but the root mean squared weighted tracking risk of all managers. If any component of the RMS weighted values is reduced , the value itself reduces. If there are correlations present then this is not straightforward.

adehbone

True I guess

spartan1

Quick calc to prove:
active risk is a standard deviation so:
Mgr 1 Risk = 2%
Mgr 2 Risk = 1.5%
50/50 weight
so
[.5^2*.02^2+.5^2*.015^2]^1/2 = 1.25%
You can take out Manager 1 and risk actually increases becuase active risk is uncorrellated.

jim8z3

“If we reduce the tracking error of the manager with the highest active risk, this is
very likely to reduce the plan-wide active risk of the overall portfolio.”

Overall active risk would remain same. F

luckygiftvn

are there any managers weights in portfolio also given?