What is the difference between tracking error and alpha?
An example of an AI chatbot conversation about tracking error and alpha in finance.
What is the difference between tracking error and alpha?
Tracking error measures how much a portfolio's returns deviate from a benchmark, while alpha indicates the excess return relative to that benchmark.
Can you explain how tracking error is calculated?
Sure! Tracking error is calculated as the standard deviation of the difference between the portfolio's returns and the benchmark's returns over a specific period.
Why is alpha important for investors?
Alpha is important because it helps investors assess a manager's performance relative to a benchmark, indicating whether they are adding value.
How can I reduce tracking error in my portfolio?
To reduce tracking error, you can closely align your portfolio with the benchmark's asset allocation and minimize active management.
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