This is straight from the curriculum
“Active risk increases when a portfolio becomes more uncorrelated with its benchmark.” - I don’t get it. Why is the active risk supposed to increase because our portfolio is not correlated to the benchmark? Is it because we are trying to imply that we are taking more active positions?
“Overweighting or underweighting GM relative to Ford will generate some Active Share, it will typically not generate much active risk” - if two stocks are in the same industry, doesn’t it mean that the active risk will be higher?
“overweighting or underweighting energy firms versus financial firms, small-cap firms versus large-cap firms, or growth firms versus value firms will certainly contribute more to active risk” - why? isn’t it supposed to lower the active risk because we have a diversified portfolio?