The constant changing nomenclature throws me off. Are these all synonymous? Are there any minor differences to look out for, e.g. “active risk” is actually not squared yet… or something ridiculous along those lines?

I believe you are correct sir.

They shall be same thing !

So it is written, So it shall be done!

Tracking Error = Tracking risk = Active risk is the standard deviation of the excess returns of the portfolio over some benchmark ( the sd of the rp-rb)

yah, what throws me off is when you get a portfolio with active returns, and active risks… i always just use the expected value of both and forget that i have to standardize the active risk part (even though it’s already given) in a portfolio context. eg. if you are given active return and active risk for one portfolio, just divide one act ret / act risk to get information ratio… but if you are given a fund that invests in say 20% portfolio a, 30% portfolio b, 50% portfolio c, then you use the expected return for active return, but you have to square all the weights and multiply them by the squared active return, then square root the final number… THEN divide act return by this number

markCFAIL Wrote: ------------------------------------------------------- > yah, what throws me off is when you get a > portfolio with active returns, and active > risks… i always just use the expected value of > both and forget that i have to standardize the > active risk part (even though it’s already given) > in a portfolio context. > > eg. if you are given active return and active risk > for one portfolio, just divide one act ret / act > risk to get information ratio… > > but if you are given a fund that invests in say > 20% portfolio a, 30% portfolio b, 50% portfolio c, > then you use the expected return for active > return, but you have to square all the weights and > multiply them by the squared active return, then > square root the final number… THEN divide act > return by this number The last paragraph assumes that all portfolios are not correlated…

yes, but that assumption is typically made (at least in every question i’ve encountered).