Hello all, A manager can pursue a higher active share without necessarily increasing active risk, vice versa. Who knows what vice versa means here? A manager can pursue a higher active risk (return), without necessarily increasing active weight? If so, is this possible? Thank you.
vice versa: The manager can pursue a low active share but the replacement positions he can select can be way different than the benchmark, thereby causing high active risk.
In your opinion, one can take more risk when the weight and sizing positions are closer to the benchmark. How can this be done? Increasing the positions of derivatives?
By betting on securities and sectors ( as a stock picker)
To shrubaks123 and 125mph,
Right. Thank you.
The active share formula is always positive for the difference between weights, right?
Security 1: 90 %
Security 2: 10 %
Security 1: 50 %
Security 2: 50 %
(40 % + 40 %) / 2 = 40 %
The formula for active share is:
active share = ½Σ|weight_portfolio,i − weightbenchmark_,i|
Note the absolute value.
If you are betting on securities and sectors aren’t you going to be overweighting certain sectors or securities and creating high active share? Confused as to when you could have high active risk and low active share. Seems like high active risk would also infer high active share as well since the weights will need to be different.