What is tracking error in finance?
An example of an AI chatbot conversation about tracking error analytics in finance.
What is tracking error in finance?
Tracking error is the difference between the performance of an investment portfolio and its benchmark index.
Why is tracking error important for investors?
It's important because it helps investors understand how closely a portfolio follows its benchmark, indicating risk.
How can I calculate tracking error?
You can calculate it by taking the standard deviation of the differences between the portfolio returns and the benchmark returns.
What is a good tracking error ratio?
A lower tracking error indicates closer alignment with the benchmark, but what's considered 'good' can vary by strategy.
Can tracking error be negative?
Tracking error itself is not negative; it represents volatility. However, the difference in returns can be negative.
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