My understanding is that IR = (total active return) / (total active risk)
But I have seen at some point that IR = (true active return) / (true active risk).
Which one is correct?..
My understanding is that IR = (total active return) / (total active risk)
But I have seen at some point that IR = (true active return) / (true active risk).
Which one is correct?..
both are correct
what is the difference between true and total
Agree with the above. The total will include misfit active risk and return.
True Active Risk is the standard deviation of the difference between Total Return and Normal Portfolio Return.
Total Active Risk = Sqrt(True Active Risk^2 + Misfit Active Risk^2).