Active Share & Active Risk
Good morning everyone,
Yes, I know there are a lot of posts on this thread already, still find it unclear..
Active risk: volatility of the portfolio´s returns, in relation to benchmark (standard deviation of active return)
Active share: difference in weights relative to benchmark
1. Diversification means: low idiosyncratic risk -> low active risk, low active share?
2. Sector rotator: large deviations permitted, so it has a high active risk
Diversified sector rotator: high active risk, low active share
Concentrated sector rotator: high active risk, high active share
3. stock picker: also high active risk
However when diversified: low active risk(??? isn´t it supposed to have high active risk), and high active share?
Concentrated stock picker: high active risk, high active share
4. diversified multi-factor investor: high active share, low active risk?
How to remember all this? To me, diversification would always mean low active risk, low active share..
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