Hello! New here on this forum…
Super stuck on this section under equities (Active Equity investing - portfolio construction - Reading 29, Book 4)
In Exhibit 12 (page 478) - the example works out the relative risk attribution by changing the original benchmarks weights of 50% in both Index A and B _ to _ 40% each of Index A and B and adding a 20% allocation to cash.
How did they work out the variance of active returns attribution for index A and B after the weight change is 14.3%, -14.3% respectively and all the risk (i.e. 100%) of the active risk is attributed to cash?
Would appreciate help!