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
Diversification means: low idiosyncratic risk -> l ow active ris k, low active share?
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
- 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
- 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…