How do u calculate true active risk? Is it the difference between Total Active Risk and Misfit Active Risk? or do I need to square each term and than take a square root? Thanks.

true active risk = [total active risk ^2 - misfit active risk ^2]^.5

I think it’s the root of - [(std dev, manager’s returns)^2 - (std dev, normal benchmark returns)^2] Same idea as tracking risk. Not 100% sure because the book is vague.

I stand corrected… just re-checked the book. sorry. Ignore my previous post. L3Aspirant’s right.

Thank you , I also think leve3aspirant is right but needed to check with someone

Easy way to remember it…like a triangle where the total risk is the hypotenous and the legs are active and misfit. a^2 + b^2 = c^2 Ben

CharterMePls Wrote: ------------------------------------------------------- > Easy way to remember it…like a triangle where > the total risk is the hypotenous and the legs are > active and misfit. a^2 + b^2 = c^2 > > Ben I like that picture =)