Tracking Error
Computes a portfolio's tracking error: the standard deviation of the differences between the portfolio's returns and the benchmark's, period by period. It measures how much the portfolio diverges from its reference index — an index fund aims for tracking error near zero, while an active fund has a higher one, reflecting its bets. It's the denominator of the information ratio. Enter the lists of portfolio and benchmark returns, in the same order, separated by commas.
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Tracking Error
Computes a portfolio's tracking error: the standard deviation of the differences between the portfolio's returns and the benchmark's, period by period. It measures how much the portfolio diverges from its reference index — an index fund aims for tracking error near zero, while an active fund has a higher one, reflecting its bets. It's the denominator of the information ratio. Enter the lists of portfolio and benchmark returns, in the same order, separated by commas.
How far the portfolio strays from the index
A fund that promises to follow the index must, in fact, follow the index. Tracking error measures the success of that promise: the standard deviation of the differences, month by month, between what the portfolio returned and what the index returned. The smaller it is, the more tightly the portfolio hugged the benchmark.
For a passive fund, tracking error near zero is the goal, and any high value signals a replication failure. For an active fund, it's the opposite: tracking error measures the boldness of the manager's bets, the size of the deviation taken to try to beat the index. Without deviation there's no way to outperform the benchmark.
Enter the list of portfolio returns and that of the benchmark, in the same order and with the same number of periods. The tool returns the tracking error as the sample standard deviation of the differences. It's the basis of the information ratio, which divides the active return by this same tracking error to measure active-management efficiency.
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Batting Average
Computes a manager's batting average: the percentage of periods in which the portfolio's return beat the benchmark's. Borrowed from baseball, the concept measures consistency, not magnitude — a manager who beats the index in seven of ten months has a 70% batting average. It's useful for telling apart those who win often from those who depend on a few exceptional months. Enter the lists of portfolio and benchmark returns, in the same order.
Appraisal Ratio (Treynor-Black)
Computes the Treynor-Black appraisal ratio: a manager's alpha divided by the standard deviation of residual risk, the part not explained by the market. It measures the quality of security selection per unit of specific risk taken, and is the central metric for deciding how much to allocate to an active strategy. The higher it is, the better the manager extracts abnormal return without taking on too much diversifiable risk. Enter the alpha and the residual standard deviation.
Up Capture Ratio
Computes a portfolio's up capture ratio: how much it kept pace with the benchmark during periods when the index rose, using the geometric compounded method (Morningstar standard). A value above one hundred percent means the portfolio captured more than the market's rise in good months; below, that it lagged on the way up. It's one half of the pair with down capture, which measures behavior on the way down. Enter the lists of portfolio and benchmark returns, in the same order.
The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.